10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the Fiscal Year Ended December 31, 2014

OR

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the Transition Period from…………To…………

Commission File Number 001-35675

RLJ ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

Nevada	45-4950432
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification Number)

8515 Georgia Avenue, Suite 650, Silver Spring, Maryland, 20910

(Address of principal executive offices, including zip code)

(301) 608-2115

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:	Name of Each Exchange on Which Registered:
Common Stock, par value $0.001	NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act:

Warrants to purchase Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES £ NO R

Indicate by check mark if the registrant is not required to file report pursuant to Section 13 or Section 15(d) of the Act.  YES £ NO R

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES ☑ NO £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES ☑ NO £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  £    Accelerated filer  £     Non- accelerated filer  £ (Do not check if a smaller reporting company)    Smaller reporting company  ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES £ NO ☑

The aggregate market value of the voting stock held by non-affiliates computed on June 30, 2014, based on the sales price of $3.82 per share:  Common Stock - $28,736,428.  All directors and executive officers have been deemed, solely for the purpose of the foregoing calculation, to be “affiliates” of the registrant; however, this determination does not constitute an admission of affiliate status for any of these shareholders.

The number of shares outstanding of the registrant’s common stock as of April 30, 2015:  12,895,772

DOCUMENTS INCORPORATED BY REFERENCE

The registrant has incorporated by reference into Part III of this Annual Report on Form 10-K portions of its proxy statement for its 2015 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A.

RLJ ENTERTAINMENT, INC.

Form 10-K Annual Report

For The Year Ended December 31, 2014

TABLE OF CONTENTS

PART I			4
	ITEM 1.	Business	4
	ITEM 1A.	Risk Factors	20
	ITEM 1B.	Unresolved Staff Comments	28
	ITEM 2.	Properties	28
	ITEM 3.	Legal Proceedings	29
	ITEM 4.	Mine Safety Disclosures	29
PART II
	ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters  and Issuer Purchases of Equity Securities	30
	ITEM 6.	Selected Financial Data	31
	ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
	ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	51
	ITEM 8.	Financial Statements and Supplementary Data	52
	ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	95
	ITEM 9A.	Controls and Procedures	95
	ITEM 9B.	Other Information	96
PART III
	ITEM 10.	Directors, Executive Officers and Corporate Governance	97
	ITEM 11.	Executive Compensation	97
	ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	97
	ITEM 13.	Certain Relationships and Related Transactions, and Director Independence	97
	ITEM 14.	Principal Accountant Fees and Services	97
PART IV
	ITEM 15.	Exhibits and Financial Statement Schedules	98
SIGNATURES			102
CERTIFICATIONS

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K for the year ended December 31, 2014 (or Annual Report) includes forward-looking statements that involve risks and uncertainties within the meaning of the Private Securities Litigation Reform Act of 1995.  Other than statements of historical fact, all statements made in this Annual Report are forward-looking, including, but not limited to, statements regarding industry prospects, future results of operations or financial position, and statements of our intent, belief and current expectations about our strategic direction, prospective and future results and condition.  In some cases, forward-looking statements may be identified by words such as “will,” “should,” “could,” “may,” “might,” “expect,” “plan,” “possible,” “potential,” “predict,” “anticipate,” “believe,” “estimate,” “continue,” “future,” “intend,” “project” or similar words.

Forward-looking statements involve risks and uncertainties that are inherently difficult to predict, which could cause actual outcomes and results to differ materially from our expectations, forecasts and assumptions.  Factors that might cause such differences include, but are not limited to:

§ Our financial performance, including our ability to achieve revenue growth, margins or earnings before income tax, depreciation, amortization, adjusted for cash investment in content, interest expense, loss on extinguishment of debt, transaction and severance costs, warrants and stock-based compensation (or Adjusted EBITDA);

§ The effects of limited cash liquidity on operational growth;

§ Our obligations under the Credit Agreement, including our principal repayment obligations;

§ Our ability to satisfy financial ratios;

§ Our ability to raise additional capital to reduce debt, improve liquidity and fund capital requirements;

§ Our ability to fund planned capital expenditures and development efforts;

§ Our inability to gauge and predict the commercial success of our programming;

§ The ability of our officers and directors to generate a number of potential investment opportunities;

§ Our ability to maintain relationships with customers, employees and suppliers;

§ Delays in the release of new titles or other content;

§ The effects of disruptions in our supply chain;

§ The loss of key personnel;

§ Our public securities’ limited liquidity and trading; or

§ Our ability to continue to meet the NASDAQ Capital Market continuing listing standards.

You should carefully consider and evaluate all of the information in this Annual Report, including the risk factors listed above and elsewhere, including “Item 1A. Risk Factors” below.  If any of these risks occur, our business, results of operations, and financial condition could be harmed, the price of our common stock could decline and you may lose all or part of your investment, and future events and circumstances could differ significantly from those anticipated in the forward-looking statements contained in this Annual Report.  Unless otherwise required by law, we undertake no obligation to release publicly any updates or revisions to any such forward-looking statements that may reflect events or circumstances occurring after the date of this Annual Report.

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PART I

ITEM 1. BUSINESS

Overview

RLJ Entertainment, Inc. (or RLJE) is a global entertainment company with a direct presence in North America, the United Kingdom (or U.K.) and Australia with strategic sublicense and distribution relationships covering Europe, Asia and Latin America.  RLJE was incorporated in Nevada in April 2012.  On October 3, 2012, we completed the business combination of RLJE, Image Entertainment, Inc. (or Image) and Acorn Media Group, Inc. (or Acorn Media or Acorn), which is referred to herein as the “Business Combination.”  The use of “we,” “our” or “us” within this Annual Report is referring to RLJE and its subsidiaries.

A summary of our significant corporate entities and structure is as follows:

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We acquire content rights in various categories, with particular focus on British mysteries and dramas, urban programming, and full-length motion pictures.  We acquire this content in two ways:

§ Through long-term exclusive licensing agreements where we secure multiple rights to third-party programs.  Generally, the rights we secure include broadcast, theatrical, digital and physical (DVD and Blu-ray), and;

§ Through development, production, and ownership of original drama television programming through our wholly-owned subsidiary, Acorn Productions Ltd. (or “Acorn Productions”) and our majority-owned subsidiary, Agatha Christie Limited (or ACL), as well as fitness programs through our Acacia brand.

We control a program library in genres such as British mysteries and dramas, urban/African-American, action/thriller and horror, fitness/lifestyle, and documentaries.

We monetize our library content through carefully managed distribution windows across multiple platforms including broadcast/cable channels, digital distribution formats (which are subscription video on demand (or SVOD), free video on demand (or FVOD), download-to-own, and download-to-rental), and DVD and Blu-ray retail and online ecommerce.

We market our products through a multi-channel strategy encompassing:

§ The licensing of original program offerings through our wholly-owned subsidiary, Acorn Productions, and our majority-owned subsidiary, ACL (our Intellectual Property Licensing or IP Licensing segment);

§ Wholesale through digital, mobile, broadcast, cable partners, ecommerce and brick and mortar (our Wholesale segment); and

§ Direct-to-consumer activities in the United States (or U.S.) and United Kingdom (or U.K.) including traditional and e-commerce offerings and our proprietary subscription-based digital platforms (our Direct-to-Consumer segment).

Acorn Productions manages and develops our intellectual property rights on British drama and mysteries.  These rights include our 64% ownership of ACL.  ACL is home to some of the world’s greatest literary works of mystery fiction, including Murder on the Orient Express, Death on the Nile and And Then There Were None and includes publishing and TV/film rights to iconic sleuths such as Hercule Poirot and Miss Marple.  The Agatha Christie library contains approximately 80 novels and short story collections, 19 plays and a film library of over 100 made-for-television films. In 2013, ACL commissioned a new writer to expand the Agatha Christie library and in the third quarter of 2014, ACL published its first book, The Monogram Murders, since the death of Agatha Christie.  Our television productions are typically financed by the pre-sale of certain distribution rights, typically being international TV distribution rights, as well as tax credits.  The pre-sale of these rights, alongside the realization of tax incentives, allows Acorn Productions to reduce production risks.

Our wholesale partners are broadcasters, digital outlets and major retailers in the U.S., Canada, U.K. and Australia, including, among others, Amazon, Netflix, Walmart, Target, Costco, Barnes & Noble, iTunes, BET, Showtime, PBS, DirecTV, and Hulu.  We have a catalog of owned and long-term licensed content that is segmented into brands such as Acorn (British drama/mystery, including content produced by ACL), Image (independent feature films, action/thriller horror), Urban Movie Channel (or UMC) (urban), Acacia (fitness), and Athena (documentaries).  Our owned content includes 28 Foyle’s War made for TV films; multiple instructional Acacia titles; and through our 64% ownership interest in ACL, the Agatha Christie branded library.

Our Direct-to-Consumer segment includes the continued roll-out of our proprietary subscription-based digital channels, such as our British mystery and drama network, Acorn TV, a fitness and lifestyle channel, Acacia TV, and a recently launched channel focused on providing entertainment to an African-American audience, UMC.  As of December 31, 2014, Acorn TV had over 118,000paying subscribers, compared to 57,000 as of the end of December 2013.  We expect the subscriber base to grow in 2015 for all of our subscription-based digital channels as we add more exclusive content to the channels.

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Acorn TV was launched in July 2011 and features British mysteries and dramas with exclusive streaming of certain series such as Agatha Christie’s Poirot, Foyle’s War, Doc Martin, Murdoch Mysteries and Midsomer Murders.  Acorn TV can be accessed through the internet at www.acorn.tv  by using computers, tablets and smartphones, or through Roku, iOS mobile, Samsung Smart TVs and Blu-ray players.

In the latter part of 2014, we launched UMC, a proprietary urban digital network targeting a broad range of urban/African-American households in the U.S.  The content serves an underserved audience with a broad range of titles.  The channel leverages our current urban content library from Image along with investments in new content in the form of licensing acquisitions such as:   The Colony, Kevin Hart:  I’m a Grown Little Man, Winnie Mandela, Jamie Foxx:  I Might Need Security, Black Coffee and 35 & Ticking. Currently, UMC is offering a 14-day free trial to attract new subscribers and can be accessed through the internet at www.UrbanMovieChannel.com, Roku and through Chromecast.  In the near future, this channel will be able to be accessed through applications such as Roku, iOS and Samsung Smart TVs and Blu-ray players.

Earlier in 2014, we also expanded our proprietary digital channels by launching Acacia TV in the U.S. and Europe.  Acacia TV is a fitness and lifestyle channel promoting healthy, joyful lives.  Subscribers to Acacia TV have access to the full catalog of Acacia fitness videos, customized fitness routines, and other wellness programming produced exclusively for Acacia TV such as nutritional information and food preparation videos.  This new digital channel is available on computers, tablets and smartphones and can be accessed on the internet at www.us.acacia.tv.  Currently, subscribers have access to fitness videos such as:  Bethenny’s Skinny Girl Workout, Lisa Whelchel’s Everyday Workout for the Everyday Woman, RIPPED Total Body Challenge, Kenya Moore Booty Boot Camp and Shiva Rea Fluid Power.  Our plan is to build content for Acacia TV that will be attractive to our existing and new Acacia customers within our direct-to-consumer segment, thus driving traffic to the Acacia website and increasing customer retention.  By continuing to add content to this digital channel, we plan to build it into the flagship of the Acacia brand.

Strategic Direction of the Company

RLJE’s management believes that the continued convergence of television and the internet will deepen competition for the attention of viewers and increase the value of content, in particular for scripted television, independent feature films and niche programming.  RLJE intends to create long-term value for its shareholders by investing in its program library and building proprietary SVOD channels for its target audiences:

§ Program library:  RLJE intends to focus its content investments primarily in the development of IP rights for television dramas and the licensing of exclusive rights for scripted television, independent feature films, urban content, fitness/wellness programs and documentaries.

§ Proprietary SVOD channels: RLJE will continue to invest in the development of proprietary SVOD channels such as Acorn TV, UMC and Acacia TV in order to develop a direct and ongoing relationship with viewers with specific interests.  We plan on increasing our subscriber base by utilizing exclusive windows with premier content.  We are also exploring other potential SVOD channels using our existing library including such titles as:  Rage, Odd Thomas, The Colony, and Creep Show for a Horror/Thriller channel; and titles such as:  WW II: A Complete History, Ancient Secrets of the Bible, Power of Myth, Civil War: Untold Story and Baseball: Golden Age of America's Game from our Athena brand for a documentary channel.  Management views these channels as a new window of exploitation that is complementary to our other current forms of distribution.

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§ Other long-term growth strategies include:

Ø The increased exploitation of our film and television library outside the U.S. with a particular emphasis on key markets such as Europe and Asia.

Ø The acquisition of content libraries that either fits or complements our genre-based focus.

Ø The continued expansion of our direct-to-consumer e-commerce business.

Ø The evaluation and pursuit of opportunities to own broader digital distribution platforms, including cable/satellite networks or VOD providers, where we can directly distribute our content and expand our brands.

Investments in Content

Our business model relies on developing and acquiring content that satisfies the desire of niche audiences for higher quality entertainment within specific genres.  We then monetize content agnostically across all platforms through carefully orchestrated windows of distribution.  When developing content, we develop new treatments from the intellectual property (or IP) we own.  We also acquire finished programs through long-term exclusive contracts. We invest in content offerings that we believe will meet or exceed management’s 20% return-on-investment (or ROI) threshold.  Our definition of ROI is the return on investment over the life of the investment (generally 7 - 10 years), and it is calculated by dividing estimated content earnings by its initial investment.  Content earnings are calculated by estimating the future earnings, which is after subtracting costs (including overhead) necessary to maintain the investment, and discounting the earnings using a risk-appropriate rate.

RLJE invests approximately $45 - $60 million annually in content.  These investments are added to our balance sheet as program rights and are expensed through the statement of operations as either amortization of advances or as overage royalty payments.  During 2013 and 2014, management worked extensively on the reallocation of our content investments pursuing content with higher financial returns and strong strategic value.  Management terminated content genres and content agreements that were either not profitable, not meeting our financial goals, or areas where we could not acquire comprehensive long-term distribution rights or control over the content.  Additionally, Management re-aligned the Company’s investment across key genres, mainly British mystery and dramas, urban, action-thriller and horror, fitness, and documentaries.

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Our investments in content provide us with significant cash flows and generate working capital, which are continuously redeployed to acquire or produce new content and fund strategic initiatives.  Some of the key program releases in 2014, which generated a significant amount of revenues for us, and planned releases for 2015 and 2016 are as follows:

British Mystery and Drama:   § Agatha Christie's Poirot, Series 11 § Agatha Christie’s Poirot, Series 12 § Agatha Christie’s Poirot, Series 13 § Agatha Christie’s Poirot, Complete Cases Collection § Agatha Christie’s Poirot Fan Favorites Collection § Foyle's War, Set 7 (Series 8) § Doc Martin, Series 6 § The Fall, Series 2 (UK) § Miss Fisher's Murder Mysteries, Series 2 § Midsomer Murders, Set 23 § Midsomer Murders, Set 24 § Murdoch Mysteries, Season 7 § New Tricks, Season 10 § Vera, Set 3 § Vera, Set 4 § The Missing (UK) § George Gently, Series 6 § Jack Taylor, Set 2 § Agatha Christie's Marple, Series 6 § Still Life: A Three Pines Mystery § Jeeves & Wooster Complete Collection § Upstairs, Downstairs: The Ultimate Collection § Case Histories, Series 2 § Line of Duty, Series 2 § Hinterland, Series 1      

            Urban:   § Winnie Mandela § The Suspect § And Then There Was You § A Cross to Bear § Black Coffee § In God's Hands § Four of Hearts § Love the One You're With § The Divorce § Laughing to the Bank  

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      Action/Thriller:   § Rage § Devil's Knot § Odd Thomas § Drive Hard § The Outsider § The Colony § Way of the Wicked § Sparks § The Adventurer: The Curse of the Midas Box  

    Horror:   § Wolf Creek 2 § Cabin Fever: Patient Zero § All Cheerleaders Die § The Invoking § Aftermath § Paranormal Diaries § Werewolf Rising § Misfire § Devil Incarnate § Hunting the Legend § Tom Holland's Twisted Tales § Day of the Mummy § Camp Dread § Phobia § Varsity Blood § Blackwater Vampire  

      Fitness:   § Exhale: Core Fusion Barre Basics for Beginners § Lisa Whelchel's Everyday Workout for Everyday Woman § Shiva Rea: Core Yoga § Tai Chi for Beginners with Grandmaster William C.C. Chen § R.I.P.P.E.D. Total Body Challenge  

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        Documentaries:   § Ancient Secrets of the Bible § Civil War: The Untold Story § David Suchet: In the Footsteps of St. Paul  

            2015/2016 Planned Releases   § And Then There Were None § Partners in Crime § Foyle’s War, Set 8 (Series 9) § The Cobbler § Rewrite § Mysterious Ways § Blackbird § Hotel Rwanda § Barbershop  

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Growth Strategy

The last 12 months were primarily dedicated to cost containment, reallocation of content investments and the launching of our new proprietary digital channels, UMC and Acacia TV.  Our growth strategy for the next 12 – 18 months is focused on revenue growth, improving net income and increasing EBITDA while keeping operating costs contained.  We plan to achieve these goals through organic activities including:

§ Acquisition of long-term and exclusive broad exploitation rights for finished programs across key genres that meet financial criteria of at least 20% targeted ROI including allocation of all direct and indirect costs through net income before taxes;

§ Production and purchase of new intellectual property rights, particularly for British scripted dramas and mysteries, and urban/African-American content;

§ Expansion of content offerings on all current and emerging digital platforms as consumers migrate from hard goods to digital consumption.  In particular, we intend to grow our proprietary SVOD channels through new investments in exclusive content, promotion and improved information technology (or IT) infra-structure.  Digital platforms also create opportunities for RLJE to improve gross margin as the cost to deliver can be considerably lower;

§ Expansion of international distribution footprint.  Expand licensing and direct exploitation efforts in territories such as Europe and Asia.

Our business model minimizes production and box-office risks by acquiring finished products with long-term rights over multiple platforms.  In addition, our business is complemented, particularly in the British mystery and drama genre, by the development of our own IP, whereby we leverage the operations of Acorn Productions and our relationships in the U.K. including our 64% ownership of ACL.   We strive to maximize the value of our program library by pursuing the development and acquisition of content with long-term value and by actively managing all windows of exploitation.  Also, our brands and long-running franchises promote customer loyalty and lower our overall investment risk.

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Our Primary Brands

We focus on high-quality British mystery and drama television, action and thriller independent feature films and diverse urban content, along with fitness and documentary lines. Titles are segmented into genre-based, franchise and content program lines and are exploited through our various brands. Our brands are as follows:

The bestselling novelist of all time, Agatha Christie has sold more than 2 billion books, and her work contains more than 80 novels and short story collections, 19 plays and a film library of over 100 TV productions. In February 2012, Acorn Media Group acquired a 64% stake in ACL. Known for specializing in the best of British television, Acorn monetizes high-quality dramas and mysteries to the broadcast/cable and home video windows within the North American, U.K. and Australian markets. Acorn is known for mystery and drama franchises and has been releasing TV movie adaptations featuring Agatha Christie’s two most famous characters, Hercule Poirot and Miss Marple, for over a decade; both series ranking among our all-time bestselling lines. Through Agatha Christie Limited, Acorn manages the vast majority of Agatha Christie publishing and television/film assets worldwide and across all mediums and actively develops new content and productions. In addition to film and television projects, in the third quarter of 2014, ACL published its first book, The Monogram Murders, since the death of Agatha Christie. The Agatha Christie family retains a 36% holding, and Mathew Prichard, Agatha Christie’s grandson, remains Chairman of ACL.

Acorn Productions provides us access to new content as a permanent presence in the U.K. television programming community. We further leverage the Acorn brand in our direct-to-consumer outlets in the U.S. and U.K. for our home-video releases and other complementary merchandise. With a mission to provide exceptional entertainment, imaginative gifts and uncommon quality, we market to consumers via two print catalogs, our online outlets, and our subscription digital television channel. The digital channel, Acorn TV, offers viewers over 1000 hours of high-quality British television programming, streaming 24/7 without commercials and on demand. New content is added on a weekly basis. Paid subscribers have access to all of the available programming, but Acorn TV offers several options to “try before you buy” through Apple TV, Apple iPhones, Apple iPads, Samsung mobile and tablets, YouTube and Roku. Some of the series currently airing on Acorn TV are Foyle’s War, Series 9, Poirot, Serangoon Road, The Palace, New Worlds, Secret State and The Blue Rose. As of December 31, 2014, Acorn TV surpassed 118,000 paid subscribers.  The Acorn catalog (www.acornonline.com) focuses on British television, specialty programming and other distinctive merchandise. Our Acorn brand generates revenues that are reported in the IP Licensing (Agatha Christie revenues), Wholesale (DVD and digital download sales) and Direct-to-Consumer segments (catalog sales and digital channels revenues).

Image Entertainment (or Image) is a leading film and television licensee focusing on action, thriller, and horror independent feature films. Image licenses exclusive long-term exploitation rights across all distribution channels, with terms ranging generally from 5 to 25 years. Image content is currently distributed primarily in the U.S. and Canada through broadcast/cable, physical and digital platforms. In 2014, we began to exploit Image-branded content in the U.K. and Australia. Our Image titles that generated the highest amount of revenues in 2014 were Rage, Odd Thomas and Devil’s Knot. All of the revenues generated by the Image brand are included in our Wholesale segment.

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The Urban Movie Channel (urbanmoviechannel.com) or UMC, launched in November 2014.  UMC is a premium subscription-based streaming service exclusive to RLJ Entertainment, Inc. and it is devoted to the development, production, and acquisition of feature films, comedy specials, stage plays, documentaries, music,  and entertainment for African American and urban audiences.  New titles are added weekly in addition to the more than 150 titles in our UMC library, which include live stand-up performances featuring Academy Award^® winner Jamie Foxx and comedic rock star Kevin Hart; documentaries Dark Girls and I Ain’t Scared of You: A Tribute to Bernie Mac; feature films All Things Fall Apart starring Grammy Award^® winner 50 Cent and directed by Mario Van Peebles, The Last Fall starring budding superstars Lance Gross and Nicole Beharie, and The Colony starring Laurence Fishburne; and stage play productions including What My Husband Doesn’t Know by David E. Talbert, who is described by Variety as “the acknowledged kingpin of urban musicals.” Subscribers can access UMC from their tablet, phone and laptop to watch movies from today’s most recognizable talent available on demand and commercial-free.

Other Brands

Acacia is a healthy-living brand that encompasses original programming on DVD, a direct-to-consumer catalog and a recently launched digital channel called Acacia TV. Acacia provides distinctive, nature-oriented products to enhance customers’ enjoyment of their surroundings and to improve their appearance and well-being. We cater to customers seeking quality products that focus on physical and spiritual well-being, fitness and natural decor.

Athena is a branded line of home-video products providing a rich and enjoyable learning experience to intellectually curious consumers. These in-depth, entertaining, long-form documentaries facilitate the pursuit of lifelong learning on a diverse range of subjects. Programs include 8- to 20-page booklets with title-specific content, DVD extras and exclusive web content to enhance the learning experience and provide viewers with valuable supplementary information. Our Athena products are available through the Acorn direct-to-consumer catalog.

Image Madacy Entertainment

The Image Madacy Entertainment library includes classic television and historical footage, as well as numerous special-interest projects. Some of the widely distributed titles include The Three Stooges, The John Wayne Collection, The Lone Ranger Collection, Bonanza and The Beverly Hillbillies, as well as documentaries about World War I and II, the Civil War, the Vietnam War, NASA, dream cars, trains and various travel collections.

Trademarks

We currently use several registered trademarks including: RLJ Entertainment, Acorn, Acorn Media, Acacia, Athena, Yoga to the Rescue, Healthy Joyful Living, Keeping Fit, Keeping Fit in Your 50s, Engage Your Mind Expand Your World, The Best British TV, The Best British Television, Acorn TV, Image, Image Entertainment, One Village Entertainment, Image Madacy Entertainment, and Midnight Madness Series.  We also currently use registered trademarks through our majority-owned subsidiary ACL including: Agatha Christie, Miss Marple and Poirot.  Recently, we filed U.S. Federal trademarks for “UMC - Urban Music Channel” in May 2014 and “Acacia TV” in June 2014.

The above-referenced trademarks, among others, are registered with the U.S. Patent and Trademark Office and various international trademark authorities.  In general, trademarks remain valid and enforceable as long as the marks are used in connection with the related products and services and the required registration renewals are filed.  We believe our trademarks have value in the marketing of our products.  It is our policy to protect and defend our trademark rights.

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Segments

Management views the operations of the Company based on three distinct reporting segments: (1) Intellectual Property Licensing (or IP Licensing); (2) Wholesale; and (3) Direct-to-Consumer.  Operations and net assets that are not associated with any of these operating segments are reported as “Corporate” when disclosing and discussing segment information.  The IP Licensing segment includes intellectual property rights that we own, produce and then exploit worldwide in various formats including DVD, Blu-ray, digital, broadcast (including cable and satellite), VOD, streaming video, downloading and sublicensing.  Our Wholesale and Direct-to-Consumer segments consist of the acquisition, content enhancement and worldwide exploitation of exclusive content in the same markets as our owned content.  The Wholesale segment exploits the content to third parties such as Walmart, Best Buy, Target, Amazon and Costco while the Direct-to-Consumer segment distributes directly to the consumer through different exploitation channels.  The Direct-to-Consumer segment distributes film and television content through our e-commerce websites, mail-order catalogs and our proprietary, subscription-based, digitally streaming channels (Acorn TV, UMC and Acacia TV).  The segment also sells complementary merchandise through our mail-order catalogs: Acorn and Acacia.

Net revenues by reporting segment for the periods presented are as follows:

	Years Ended December 31,
(In thousands)	2014		2013
IP Licensing	$	8,752	$	8,019
Wholesale		91,379		115,397
Direct-to-Consumer		37,558		41,414
Total revenues	$	137,689	$	164,830

Assets for each reporting segment and Corporate as of December 31, 2014 and 2013 are as follows:

(In thousands)	December 31,
	2014		2013
IP Licensing	$	30,197	$	36,127
Wholesale		140,935		160,968
Direct-to-Consumer		12,049		15,964
Corporate		8,873		7,211
	$	192,054	$	220,270

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IP Licensing

A summary of the IP Licensing segment’s revenues and expenses is as follows:

	Years Ended December 31,
(In thousands)	2014			2013
Revenue	$	8,752		$	8,019
Operating costs and expenses		(6,662	)		(7,967	)
Depreciation and amortization		(115	)		(89	)
Share in ACL earnings		2,580			3,296
IP Licensing segment contribution	$	4,555		$	3,259

Our IP Licensing segment includes owned intellectual property that is either acquired or created by us and is licensed for exploitation worldwide.  The operating activities consist of our 100% interest in Foyle’s War Series 8 and Series 9. Our IP Licensing segment does not include revenues generated or costs incurred from the exploitation of Foyle’s War Series by our Wholesale segment. Also included is our 64% majority interest in ACL.  ACL is accounted for using the equity method of accounting given the voting control of the Board of Directors by the minority shareholder. Gross margin percentages generated from content that is owned is generally higher than margins realized from content that is not owned.

As part of our growth strategy, we plan to continue to produce and own more intellectual property with an emphasis in British mysteries and dramas and urban programming.

Wholesale

A summary of the Wholesale segment’s revenues and expenses is as follows:

	Years Ended December 31,
(In thousands)	2014			2013
Revenue	$	91,379		$	115,397
Operating costs and expenses		(85,595	)		(118,455	)
Depreciation and amortization		(1,684	)		(3,115	)
Wholesale segment contribution	$	4,100		$	(6,173	)

The Wholesale segment consists of acquisition of content, content enhancement and worldwide exploitation of exclusive content in various formats to third parties such as Walmart, Best Buy, Target, Amazon and Costco.  We market and exploit our exclusive content through agreements that generally range from 5 to 25 years in duration.  The revenues generated in our Wholesale segment are historically our most consistent revenue stream.

While standard DVD comprise a majority of our revenues within this segment, Blu-ray titles and related revenues continue to increase given the format’s growing acceptance.  We believe that the affordability of larger screen high-definition television (or HDTV) and ease of use as an entertainment hub in consumer households will continue to accelerate the conversion from standard DVD to Blu-ray formats for all demographics.  We also believe there is a significant opportunity for us to realize increased revenues from customers of Acorn branded British mystery and drama product who will be converting their standard DVD collection to Blu-ray.  It is expected that future revenues generated from DVD and Blue-ray sales will decline and sale of content to consumers through digital, streaming video and downloading will increase in future years.

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We engage in the exclusive licensing of the digital rights to our library of audio and video content. The demand for the types of programming found in our library continues to increase as new digital retailers enter the online marketplace.  We seek to differentiate ourselves competitively by being a one-stop source for these retailers who desire a large and diverse collection of entertainment represented by our digital library.  We enter into non-exclusive arrangements with retail and consumer-direct entities whose business models include the digital delivery of content. We continue to add video and audio titles to our growing library of exclusive digital rights.  The near-term challenges faced by all digital retailers are to develop ways to increase consumer awareness and integrate this awareness into their buying and consumption habits.  Some of our digital retailers include Netflix, iTunes, Amazon, Hulu, Microsoft Xbox Live Marketplace, Sony PlayStation, YouTube/Google, Vudu, Vevo, Intel, Roku and Samsung.

We further exploit our product in the ‘traditional’ VOD channels, wherein consumers pay a fee to watch programming via their cable or satellite operators.  This business model has expanded in recent years to include exclusive windows for VOD monetization prior to other channels of exploitation.  For example, a high-profile release may be released on VOD prior to theatrical exploitation.  In that instance, we would receive higher price points and better placement with our VOD providers.  Our partners in the VOD space include DirecTV, Dish, inDemand, AT&T Uverse, Vubiquity and Warner Digital Distribution. We also exploit our product to cable networks in the United States.  Traditionally, our Acorn product has been sold to PBS or its affiliated stations, while our feature-length product has been sold to a wide array of customers.  These cable networks include BET, Chiller, Fearnet, SyFy, CW, Disney, and Lifetime.

Outside North America and the U.K., we sublicense distribution in the areas of home entertainment, television and digital through distribution partners such as Universal Music Group International, BET International, Warner Music Australia and Universal Pictures Australia, each of which pays us a royalty for their distribution of our products.

Direct-to-Consumer

A summary of the Direct-to Consumer segment’s revenues and expenses is as follows:

	Years Ended December 31,
(In thousands)	2014			2013
Revenue	$	37,558		$	41,414
Operating costs and expenses		(41,413	)		(44,762	)
Depreciation and amortization		(3,415	)		(2,931	)
Goodwill impairment		(981	)		—
Direct-to-Consumer segment contribution	$	(8,251	)	$	(6,279	)

The Direct-to-Consumer segment exploits the same film and television content as the Wholesale segment but exploits the content directly in the U.S. and the U.K. to consumers through various proprietary SVOD channels and in our catalogs (Acorn and Acacia) and our e-commerce websites.  To date, we have three proprietary digital subscription channels, which are Acorn TV, UMC and Acacia TV.  We are continually rolling-out new content on our digital channels and attracting new subscribers.  As of December 31, 2014, Acorn TV had over 118,000 subscribers compared to 57,000 subscribers at December 31, 2013.

During 2014, we delivered 21.5 million catalogs and flyers of which 20.4 million were delivered in the U.S. and 900,000 were delivered in the U.K. We had approximately 4.4 million visitors in 2014 to our e-commerce websites with 4.7% of the visitors purchasing our products.  The catalogs and online businesses have diverse product offerings marketed to a select audience. Through our brands, Acorn and Acacia, our product offering includes DVDs, lifestyle products for the discerning British mystery consumer, apparel, jewelry, and decorative household items.  The Direct-to-Consumer segment achieved record sales of proprietary DVDs to consumers in 2014.

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During 2011, Acorn Media launched its first online paid subscription channel, Acorn TV, with the stated goal of being a distinctive point for consumers with interest in high-quality British TV programming.  Viewership continues to grow with free subscriptions offered over a 30-day period.  Acorn TV is currently available through the branded Acorn website and through applications currently with YouTube and Roku consumers.  New applications were launched in 2014 and include iOS application for iPhones, iPads and Samsung devices.  During 2015, we plan on investing in more exclusive content for our digital channels and establishing partnerships with device manufactures and other third-party digital platforms to assist with increasing viewership and subscribers during 2015.

In late 2014, we launched UMC, an urban digital proprietary network targeting a broad range of the African-American households in the U.S.  The network is anticipated to skew towards a younger demographic versus our Acorn TV offering.  The content will leverage our current urban content library from Image along with investments in new content in the form of co-productions and acquisitions.

In early 2014, we expanded our proprietary digital channels by launching Acacia TV in the U.S. and Europe.  Acacia TV is a fitness and lifestyle channel with the primary goal of assisting viewers in living healthy, joyful lives.  Subscribers to Acacia TV have access to the full catalog of Acacia fitness videos, customized fitness routines for adding variety, and video content produced exclusively for Acacia TV such as nutritional information and food preparation videos.

Outsourced Services

In 2013, we consolidated our Wholesale fulfillment partners to better manage capital and reduce costs.  Under a Distribution Services and License Agreement with Sony Pictures Home Entertainment (or SPHE), SPHE acts as our exclusive manufacturer in North America to meet our hard good manufacturing requirements (DVD and Blue-ray) and to provide related fulfillment and other logistics services in exchange for certain fees.  Our agreement with SPHE expires in August 2019. Under our relationship with SPHE, we are responsible for the credit risk from the end customer with respect to accounts receivable and also the risk of inventory loss with respect to the inventory they manage on our behalf.

In addition to conventional manufacturing, we also utilize SPHE’s capability to manufacture-on-demand (or MOD).  MOD services are provided for replication of slower moving titles, which helps avoid replicating larger minimum quantities of certain titles, and can be used for direct-to-consumer sales as needed.  Under our agreement, SPHE also provides certain operational services at our direction, including credit and collections, merchandising, returns processing and certain IT functions.

We believe the SPHE agreement provides us with several significant advantages, including:

§ The ability to sell directly to key accounts such as Walmart, Best Buy and Costco, which eliminates other third-party distributor fees, provides incremental revenues, higher gross margins and the ability to better manage retail inventories;

§ Access SPHE’s point-of-sale reporting systems to better manage replenishment of store inventories on a daily basis; and

§ Access SPHE’s extensive scan-based trading network that features product placement in over 20,000 drug and grocery outlets.

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We also outsource certain post-production and creative services necessary to prepare a disc master for manufacturing and packaging/advertising materials for marketing of our products.  Such services include:

§ Packaging design;

§ DVD/Blu-ray authoring and compression;

§ Menu design;

§ Video master quality control;

§ Music clearance; and

§ For some titles, the addition of enhancements, such as:

Ø multiple audio tracks;

Ø commentaries;

Ø foreign language tracks;

Ø behind-the-scenes footage; and

Ø interviews.

In the U.K., we have a fulfillment and logistics services arrangement with Sony DADC UK Limited,which is similar to the arrangement we have with SPHE in North America.

In the U.S., Trade Global is our outsourced fulfillment partner that assists with managing our Direct-to-Consumer segment’s catalog business. They provide the following services:  customer service, order management and fulfillment, cash collection, credit card processing, merchandise return processing and inventory management.

Marketing and Sales

Our in-house marketing department manages promotional efforts across a wide range of off-line and online platforms.  Our marketing efforts include:

§ Point-of-sale advertising;

§ Print advertising in trade and consumer publications;

§ Television, outdoor, in-theater and radio advertising campaigns;

§ Internet advertising, including viral and social network marketing campaigns;

§ Direct-response campaigns;

§ Dealer incentive programs;

§ Trade show exhibits;

§ Bulletins featuring new releases and catalog promotions; and

§ Public relations outreach programs.

RLJE maintains its own sales force and has a direct selling relationship with the majority of its broadcast and cable/satellite partners, and retail customers.  We sell our programs to broadcasters, cable and satellite providers, traditional and specialty retailers, internet retailers, rental outlets, wholesale distributors and through alternative exploitation efforts, which includes direct-to-consumer print catalogs, proprietary e-commerce websites, direct-response campaigns, subscription service/club sales, proprietary SVOD subscription channels, home shopping television channels, other non-traditional sales channels, kiosks and sub-distributors.  Examples of our key broadcast/cable/satellite partners are DirecTV, Starz, BET and public television stations.  Examples of our key customers are Amazon.com, Walmart, Best Buy Co., Target, Costco and HMV. Examples of our key distribution partners are Video Products Distributors, Ingram Entertainment, ITV Global Enterprises and All3Media. Examples of key rental customers are Netflix and Redbox.

We also focus on special-market sales channels, to take advantage of our large and diverse catalog and to specifically target niche sales opportunities.  Examples of our key customers within special markets are Midwest Tapes and Waxworks.  Another special-market channel is scanned-based trading in conjunction with SPHE.

Additionally, in connection with our Distribution Services and License Agreement with SPHE, SPHE agreed to perform certain sales and inventory management functions at Walmart, Best Buy and Target.  By using SPHE, we benefit from having a major studio present RLJE’s product alongside its own releases, which include well known motion pictures.  SPHE is our primary vendor of record for shipments of physical product to North American retailers and wholesalers, and as the vendor of record, they are responsible for collecting these receivables and remitting these proceeds to us.  In the U.K., similar services are provided by Sony DADC UK Limited.

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Customer Concentration

Amazon accounted for approximately 19.0% of our net revenues for the year ended December 31, 2014.  We do not have any other customers which accounted for more than 10.0% of our net revenues for the year.  Our top five customers accounted for approximately 46.2% of our net revenues for 2014, which includes Amazon.  At December 31, 2014, SPHE and Netflix accounted for approximately 44.0% and 21.4%, respectively, of our gross accounts receivables.

Competition

We face competition from other independent distribution companies, major motion picture studios and broadcast and internet outlets in securing exclusive content distribution rights.  We also face competition from online and direct-to-consumer retailers, as well as alternative forms of leisure entertainment, including video games, the internet and other computer-related activities.  The success of any of our products depends upon consumer acceptance of a given program in relation to current events as well as the other products released into the marketplace at or around the same time.  Consumers can choose from a large supply of competing entertainment content from other suppliers.  Many of these competitors are larger than us.  Our DVD and Blu-ray products compete for a finite amount of brick-and-mortar retail and rental shelf space. Sales of digital downloading, streaming, VOD and other broadcast formats are largely driven by what is visually available to the consumer, which can be supported by additional placement fees or previous sales success.  Programming is available online, delivered to smart phones, tablets, laptops personal computers, or direct to the consumers’ TV set through multiple internet-ready devices and cable or satellite VOD.  Digital and VOD formats are growing as an influx of new delivery devices, such as the Apple iPad and the Microsoft Xbox, gain acceptance in the marketplace.  According to ABI Research, as of December 31, 2013, there were approximately 70 million name-brand tablets owned in the U.S., and the number is rapidly growing.  We face increasing competition as these platforms continue to grow and programming providers enter into distribution agreements for a wider variety of formats.

Our ability to continue to successfully compete in our markets is largely dependent upon our ability to develop and secure unique and appealing content, and to anticipate and respond to various competitive factors affecting the industry, including new or changing product formats, changes in consumer preferences, regional and local economic conditions, discount pricing strategies and competitors’ promotional activities.

Industry Trends

According to The Digital Entertainment Group (or DEG), consumer home entertainment spending in calendar 2014 exceeded $17.8 billion, or a year-over-year decline of 1.8%.  This slight decrease was driven by the continued decrease in physical format sales (led by the maturing of DVD’s), which decreased year-over-year by 10.9%.  Offsetting this decrease was a 16.1% year-over-year increase in digital-format revenues to over $7.5 billion in 2014.

Digital-format revenues include electronic sell-through (or EST), VOD and subscription-based streaming.   Subscription-based programing revenues increased by 25.8% in 2014 compared to 2013, while revenues from other digital formats increased by 6.7%.

DEG reported that in 2014 the number of homes with Blu-ray playback devices, including set-top boxes, game consoles and home-theater-in-a-box systems, was 70 million.  DEG also reported that the number of households with HDTV is now more than 95 million.

According to PricewaterhouseCoopers LLP’s Global Entertainment and Media Outlook for 2014-2018, consumer spending for the overall physical home entertainment segment in the U.S. is projected to decline at a 6.5% compound annual rate over the 2014-2018 period to approximately $8.7 billion in 2018.  While the decline in consumer spending on physical home entertainment continues, although at a lower rate than in past years, it is substantially offset by the increase in consumer spending on electronic home video.  Consumer spending in the U.S. on electronic distribution, driven primarily by SVOD, will surge from $7.3 billion in 2013 to $17.0 billion in 2018, compounded annual rate of 18.3% over the 2014-2018 period as a result of growth in existing services (e.g., Netflix, Apple, Microsoft, etc.), augmented with new download service providers, growth in video-friendly hardware (e.g., tablets) and growing consumer acceptance of digital lockers.  By 2018, the electronic home video segment is projected to be the main contributor to total filmed entertainment revenue at 43%, overtaking the box office in 2017.

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Employees

As of February 13, 2015, we had 109 U.S.-based employees at our Maryland, California and Minnesota locations.  We had 38 employees at our U.K. and Australia locations.  Our employees are primarily employed on a full-time basis.

Available Information

Under the menu “Investors—SEC Filings” on our website at www.rljentertainment.com, we provide free access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.  The information contained on our website is not incorporated herein by reference and should not be considered part of this Annual Report.

ITEM 1A. RISK FACTORS

Risks Relating to Our Liquidity and Credit Agreement

We may not be able to generate sufficient cash to service all of our indebtedness, and we may be forced to take other actions, which may or may not be successful, to satisfy our obligations under our indebtedness. Our ability to make scheduled payments depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including our Credit Agreement with certain lenders and McLarty, as Administrative Agent. In the absence of such cash flows or capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our senior secured Credit Agreement and the indenture governing our senior secured notes restrict our ability to dispose of assets and use the proceeds from such dispositions. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

If we cannot make scheduled payments on our debt, we will be in default and, as a result:

§ Our debt holders could declare all outstanding principal and interest to be due and payable; and

§ We could be forced into bankruptcy or liquidation.

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Our Credit Agreement contains covenants that may limit the way we conduct business. Our Credit Agreement contains various covenants limiting our ability to:

§ incur or guarantee additional indebtedness;

§ pay dividends and make other distributions;

§ pre-pay any subordinated indebtedness;

§ make investments and other restricted payments;

§ make capital expenditures;

§ enter into merger or acquisition transactions; and

§ sell assets.

These covenants may prevent us from raising additional debt or equity financing, competing effectively or taking advantage of new business opportunities.

Our Credit Agreement includes covenants that require us to maintain specified financial ratios. Our ability to satisfy those financial ratios can be affected by events beyond our control, and we cannot be certain we will satisfy those ratios.  As of March 31, 2015, we were not in compliance with our minimum cash balance requirement, which was waived by our lenders on April 15, 2015.

Our Credit Agreement provides that the failure to comply with the financial ratios or other covenants or a material adverse change in our business, assets or prospects constitutes an “event of default.”  If we are unable to comply with the financial ratios, comply with other covenants as specified in the Credit Agreement, our lenders may choose to assert an event of default under our Credit Agreement.  In this event, unless we are able to negotiate an amendment, forbearance or waiver, we could be required to repay all amounts then outstanding, which would have a material adverse effect on our liquidity, business, results of operations, and financial condition.

We may not be able to generate the amount of cash needed to fund our future operations. Our ability either to fund planned capital expenditures and development efforts will depend on our ability to generate cash in the future.  Our ability to generate cash is in part subject to general economic, financial, competitive, regulatory and other factors that are beyond our control. We cannot assure you, however, that our business will generate sufficient cash flow from operations to fund our liquidity needs.

Our liquidity depends on our cash-on-hand, operating cash flows and ability to collect cash receipts.  At March 31, 2015, our cash and cash equivalents were approximately $3.1 million and, in accordance with the April 15, 2015 amendment to the Credit Agreement, we are required to maintain $1.0 million of cash at all times. We rely on our cash-on-hand, operating cash flows and ability to collect cash receipts to fund our operations and meet our financial obligations.  Delays or any failure to collect our trade accounts receivable would have a negative effect on our liquidity.

We have pledged our intellectual property assets to secure our Credit Agreement, and this represents a risk to our business, results of operations and financial condition. In order to secure the financing necessary to operate our business, we pledged all of our intellectual property rights as collateral to our Credit Agreement. If we were to default on our obligations under the Credit Agreement, we could forfeit our intellectual property and, thereby, a primary source of revenue. This could have a material adverse effect on our business, results of operations and financial condition. 

We are seeking additional capital funding and such capital may not be available to us. We are exploring various equity financing alternatives. If we are unable to obtain additional capital, we may be required to delay or reduce our operations. We cannot assure you that any necessary additional financing will be available on terms favorable to us, or at all. If we raise additional funds through the issuance of securities convertible into or exercisable for common stock, the percentage ownership of our stockholders could be significantly diluted, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders.  Market and industry factors may harm the market price of our common stock and may adversely impact our ability to raise additional funds. Similarly, if our common stock is delisted from the NASDAQ Capital Market, it may limit our ability to raise additional funds.

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Risks Relating to Our Business

We have limited working capital and limited access to financing.Our cash requirements, at times, may exceed the level of cash generated by operations. Accordingly, we may have limited working capital.

Our ability to obtain adequate additional financing on satisfactory terms may be limited and our Credit Agreement prevents us from incurring additional indebtedness.  Our ability to raise financing through sales of equity securities depends on general market conditions, including the demand for our common stock.  We may be unable to raise adequate capital through the sale of equity securities, and if we were able to sell equity, our existing stockholders could experience substantial dilution.  If adequate financing is not available at all or it is unavailable on acceptable terms, we may find we are unable to fund expansion, continue offering products and services, take advantage of acquisition opportunities, develop or enhance services or products, or respond to competitive pressures in the industry.

Our business requires a substantial investment of capital.  The production, acquisition and distribution of programming require a significant amount of capital. Capital available for these purposes will be reduced to the extent that we are required to use funds otherwise budgeted for capital investment to fund our operations and/or make scheduled payments on our debt obligations. Curtailed content investment over a sustained period could have a material adverse effect on future operating results and cash flows.  Further, a significant amount of time may elapse between our expenditure of funds and the receipt of revenues from our television programs or motion pictures. This time lapse requires us to fund a significant portion of our capital requirements from our operating cash flow and from other financing sources. Although we intend to continue to mitigate the risks of our production exposure through pre-sales to broadcasters and distributors, tax credit programs, government and industry programs, co-financiers and other sources, we cannot assure you that we will continue to successfully implement these arrangements or that we will not be subject to substantial financial risks relating to the production, acquisition, completion and release of new television programs and motion pictures. In addition, if we increase (through internal growth or acquisition) our production slate or our production budgets, we may be required to increase overhead and/or make larger up-front payments to talent and, consequently, bear greater financial risks. Any of the foregoing could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.

Our inability to gauge and predict the commercial success of our programming could adversely affect our business, results of operations and financial condition.  Operating in the entertainment industry involves a substantial degree of risk.  Each video program or feature film is an individual artistic work, and its commercial success is primarily determined by unpredictable audience reactions.  The commercial success of a title also depends upon the quality and acceptance of other competing programs or titles released into the marketplace, critical reviews, the availability of alternative forms of entertainment and leisure activities, general economic conditions and other tangible and intangible external factors, all of which are subject to change and cannot be predicted.  Timing is also sometimes relevant to a program’s success, especially when the program concerns a recent event or historically relevant material (e.g., an anniversary of a historical event which focuses media attention on the event and accordingly spurs interest in related content).  Our success depends in part on the popularity of our content and our ability to gauge and predict it.  Even if a film achieves success during its initial release, the popularity of a particular program and its ratings may diminish over time.  Our inability to gauge and predict the commercial success of our programming could materially adversely affect our business, results of operations and financial condition.

We may be unable to recoup advances paid to secure exclusive distribution rights.  Our most significant costs and cash expenditures relate to acquiring content for exclusive distribution.  Most agreements to acquire content require upfront advances against royalties or net profits participations expected to be earned from future distribution.  The amount we are willing to advance is derived from our estimate of net revenues that will be realized from our distribution of the title.  Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results will differ from those estimates.  If sales do not meet our original estimates, we may (i) not recognize the expected gross margin or net profit, (ii) not recoup our advances or (iii) record accelerated amortization and/or fair value write-downs of advances paid.  We recorded impairments of $4.8 million and $6.4 million during 2014 and 2013, respectively, related to our investments in content.

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Our inability to maintain relationships with our program suppliers and vendors may adversely affect our business.  We receive a significant amount of our revenue from the distribution of content for which we already have exclusive agreements with program suppliers.  However, titles which have been financed by us may not be timely delivered as agreed or may not be of the expected quality.  Delays or inadequacies in delivery of titles, including rights clearances, could negatively affect the performance of any given quarter or year.  In addition, results of operations and financial condition may be materially adversely affected if:

§ We are unable to renew our existing agreements as they expire;

§ Our current program suppliers do not continue to support digital, DVD or other applicable format in accordance with our exclusive agreements;

§ Our current content suppliers do not continue to license titles to us on terms acceptable to us; or

§ We are unable to establish new beneficial supplier relationships to ensure acquisition of exclusive or high-profile titles in a timely and efficient manner.

Disputes over intellectual property rights could adversely affect our business, results of operations and financial condition.  Our sales and net revenues depend heavily on the exploitation of intellectual property owned by us or third parties from whom we have licensed intellectual property. Should a dispute arise over, or a defect be found in, the chain of title in any of our key franchises, this could result in either a temporary suspension of distribution or an early termination of our distribution license. This could have a material adverse impact on our business, results of operations and financial condition.

We, and third parties that manage portions of our secure data, are subject to cybersecurity risks and incidents. Our direct-to-consumer business involves the storage and transmission of customers' personal information, shopping preferences and credit card information, in addition to employee information and our financial and strategic data. The protection of our customer, employee and company data is vitally important to us. While we have implemented measures to prevent security breaches and cyber incidents, any failure of these measures and any failure of third parties that assist us in managing our secure data could materially adversely affect our business, financial condition and results of operations.

A high rate of product returns may adversely affect our business, results of operations and financial condition.As with the major studios and other independent companies in this industry, we experience a relatively high level of product returns as a percentage of our revenues. Our allowances for sales returns may not be adequate to cover potential returns in the future, particularly in the case of consolidation within the home-video retail marketplace, which when it occurs tends to result in inventory consolidation and increased returns.  We have experienced a high rate of product returns over the past three years.  We expect a relatively high rate of product returns to continue, which may materially adversely affect our business, results of operations and financial condition.

We depend on third-party shipping and fulfillment companies for the delivery of our products.  If these companies experience operational difficulties or disruptions, our business could be adversely affected.We rely on SPHE, our distribution facilitation and manufacturing partner in North America, Sony DADC UK Limited in the U.K, and Trade Global, our fulfillment partner in the U.S. for a majority of our Direct-to-Consumer sales, to determine the best delivery method for our products.  These partners rely entirely on arrangements with third-party shipping companies, principally Federal Express and UPS, for small package deliveries and less-than-truckload service carriers for larger deliveries, for the delivery of our products. The termination of arrangements between our partners and one or more of these third-party shipping companies, or the failure or inability of one or more of these third-party shipping companies to deliver products on a timely or cost-efficient basis from our partners to our customers, could disrupt our business, reduce net sales and harm our reputation.  Furthermore, an increase in the amount charged by these shipping companies could negatively affect our gross margins and earnings.

Economic weakness may continue to adversely affect our business, results of operations and financial condition.  The global economic downturn had a significant negative effect on our revenues and may continue to do so. As consumers reduced spending and scaled back purchases of our products, we experienced higher product returns and lower sales, which adversely affected our revenues and results of operations in previous years.  Although consumer spending has improved over the last few years, weak consumer demand for our products may occur and may adversely affect our business, results of operations and financial condition.

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Our high concentration of sales to and receivables from relatively few customers (and use of a third-party to manage collection of substantially all packaged goods receivables) may result in significant uncollectible accounts receivable exposure, which may adversely affect our liquidity, business, results of operations and financial condition.  During 2014, our net revenues from Amazon were 19.0% of our net revenues.  Our top five customers accounted for approximately 46.2% of our net revenues for 2014.  SPHE and Netflix accounted for approximately 44.0% and 21.4%, respectively, of our gross accounts receivable as of December 31, 2014.

We may be unable to maintain favorable relationships with our retailers and distribution facilitators including SPHE and Sony DADC UK Limited.  Further, our retailers and distribution facilitators may be adversely affected by economic conditions.  If we lose any of our top customers or distribution facilitators, or if any of these customers reduces or cancels a significant order, it could have a material adverse effect on our liquidity, business, results of operations and financial condition.

We face credit exposure from our retail customers and may experience uncollectible receivables from these customers should they face financial difficulties.  If these customers fail to pay their accounts receivable, file for bankruptcy or significantly reduce their purchases of our programming, it would have a material adverse effect on our business, financial condition, results of operations and liquidity.

A high concentration of our gross accounts receivables is attributable to SPHE and Sony DADC UK Limited, as they are our vendor of record for shipments of physical product to North American and U.K. retailers and wholesalers.  As part of our arrangement with our distribution facilitation partners, SPHE and Sony DADC UK Limited collect the receivables from our end customers, provide us with monthly advance payments on such receivables (less a reserve), and then true up the accounts receivables accounting quarterly.  While we remain responsible for the credit risk from the end customer, if SPHE or Sony DADC UK Limited should fail to adequately collect and pay us the accounts receivable they collect on our behalf, whether due to inadequate processes and procedures, inability to pay, bankruptcy or otherwise, our financial condition, results of operations and liquidity would be materially adversely affected.

We do not control the timing of dividends paid by ACL, which could negatively impact our cash flow.Although we hold a 64% interest in ACL, we do not control the board of directors of ACL. The members of the Agatha Christie family, who hold the remaining 36% interest in ACL, have the right to appoint the same number of directors as us and, in the event of deadlock on any decision of the board, also have a second or casting vote exercised by their appointee as chairman of ACL, which allows them to exercise control of ACL’s board of directors.

Under English law, the amount, timing and form of payment of any dividends or other distributions is a matter for ACL’s board of directors to determine, and, as a result, we cannot control when these distributions are made. If ACL’s board of directors decides not to authorize distributions, our revenue and cash flow may decrease, materially adversely affecting our business, results of operations, liquidity and financial condition.

Our business plan and future growth depend in part on our ability to commercialize the IP owned by ACL based on commissions for new programming from broadcasters, over whom we have no control.  If we are unable to successfully implement this strategy, the results of operations and financial condition could be materially adversely affected. Our financial condition and results of operation will depend, in part, on our ability to commercialize the IP owned by ACL. Whether we are able to successfully commercialize the IP owned by ACL, including the creation of new content, will depend, in part, on ACL obtaining commissions for new programming from broadcasters (such as ITV, BBC, and Sky in the UK and Fox, Disney and other studios in the U.S.). The ability to obtain commissions for new programming from broadcasters will depend on many factors outside of our control, including audience preferences and demand, financial condition of the broadcasters, the broadcasters’ budgets and access to financing, competitive pressures and the impact of actual and projected general economic conditions. We cannot guarantee that we will be able to obtain such commissions for new programming within our anticipated timeframe or at all. Without such commissions for new programming, we may not be able to successfully commercialize the IP of ACL in a timely or cost-effective manner, if at all. Failure to obtain commissions for new programming could adversely affect our market share, revenue, financial condition, results of operations, relationships with our distributors and retailers and our ability to expand our market, all of which would materially adversely affect our business, revenues and financial results.

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We depend on key and highly skilled personnel to operate our business, and if we are unable to retain our current personnel or hire additional personnel, our ability to develop and successfully market our business could be harmed.Our success continues to depend to a significant extent on our ability to identify, attract, hire, train and retain qualified professional, creative, technical and managerial personnel.  Moreover, we believe that our success greatly depends on the contributions of our Chairman, Robert L. Johnson, executive officers including Chief Executive Officer, Miguel Penella, and Chief Financial Officer, Andrew S. Wilson, and other key executives. Although we have employment agreements with certain members of our executive management, any of our employees may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace.  The loss of any key employees or the inability to attract or retain qualified personnel could delay the acquisition of content and harm the market's perception of us.  Competition for the caliber of talent required to acquire and exploit content continues to increase.If we are unable to attract and retain the qualified personnel we need to succeed, our business, results of operations and financial condition could suffer.

We face risks from doing business internationally.  We exploit and derive revenues from television programs and feature films outside the U.S., directly in the U.K. and in Australia, and through various third-party licensees elsewhere. As a result, our business is subject to certain risks inherent in international business, many of which are beyond our control. These risks include:

§ Laws and policies affecting trade, investment and taxes, including laws and policies relating to the repatriation of funds and withholding taxes, and changes in these laws;

§ Changes in local regulatory requirements, including restrictions on content, differing cultural tastes and attitudes;

§ Differing degrees of protection for intellectual property;

§ Financial instability and increased market concentration of buyers in foreign television markets, including in European pay television markets;

§ The instability of foreign economies and governments;

§ Fluctuating foreign exchange rates; and

§ War and acts of terrorism.

Events or developments related to these and other risks associated with international trade could adversely affect our revenues from non-U.S. sources, which could have a material adverse effect on our business, financial condition, operating results, liquidity and prospects.

 Changes to existing accounting pronouncements or taxation rules or practices may affect how we conduct our business and affect our reported results of operations. New accounting pronouncements or tax rules and varying interpretations of accounting pronouncements or taxation practice have occurred and may occur in the future. A change in accounting pronouncements or interpretations or taxation rules or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective. Changes to existing rules and pronouncements, future changes, if any, or the questioning of current practices or interpretations may materially adversely affect our reported financial results or the way we conduct our business.

Changes in, or interpretations of, tax rules and regulations, and changes in geographic operating results, may adversely affect our effective tax rates. We are subject to income taxes in the U.S. and foreign tax jurisdictions. Our future effective tax rates could be affected by changes in tax laws or the interpretation of tax laws, by changes in the amount of revenue or earnings that we derive from international sources in countries with high or low statutory tax rates, or by changes in the valuation of our deferred tax assets and liabilities. Unanticipated changes in our tax rates could affect our future results of operations.

In addition, we may be subject to examination of our income tax returns by federal, state and foreign tax jurisdictions. We regularly assess the likelihood of outcomes resulting from possible examinations to determine the adequacy of our provision for income taxes. In making such assessments, we exercise judgment in estimating our provision for income taxes. While we believe our estimates are reasonable, we cannot assure you that final determinations from any examinations will not be materially different from those reflected in our historical income tax provisions and accruals. Any adverse outcome from any examinations may have a material adverse effect on our business and operating results.

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Risks Relating to Our Industry

Revenues from the sale of DVD’s are declining.  During calendar 2014, the standard DVD marketplace experienced the eighth straight year-over-year decline for the category since the format debuted in 1997. We estimate that approximately 52.3% of our current net revenue base is generated from the sale of physical goods, which include the revenues from the sale of DVDs.  The continued maturation of the standard DVD format may continue to adversely affect our business, results of operations and financial condition.

Decreasing retail prices for DVDs may negatively affect our revenues and gross profit margins.  The home entertainment programming market in which we compete is rapidly evolving and intensely competitive.  Many of our competitors, including major studios, are increasingly offering programming, particularly DVD programming, at lower prices.  They may be able to produce or secure content on more favorable terms and may be able to adopt more aggressive pricing policies than we can.  While we strive to improve our operating efficiencies and leverage our fixed costs so that we can afford to pass along these savings to our customers in the form of lower prices, the industry trend of lowering prices may, over time, led to lower sales, decreased profit margins or decreased overall revenues.

Decreasing retail shelf space for our industry may limit sales of our programming, which may adversely affect our business, results of operations and financial condition.  We face increasing competition from major motion picture studios and other independent content suppliers for limited retail shelf space, which space has been shrinking in absolute terms as brick and mortar retailers have fewer stores and lower budgets for the home-video space within their stores.  Our exclusive content competes for a finite amount of shelf space against a large and diverse supply of entertainment content from other suppliers.  New releases generally exceed several hundred titles a week.  We believe this competition can be especially challenging for independent labels like us, because the new releases of major studios often have extremely high visibility, greater marketing support and sales projections in the millions of units, which typically require much more shelf space to support.

Shelf space limitations at our brick and mortar retail customers are exacerbated by the increasing popularity of the high-definition format, Blu-ray.  The combination of standard discs, premium discs and special-edition boxed sets across two formats means that a release can come in as many six different configurations.  With the possible exception of our most popular new release titles and top-selling catalog titles, it can be a challenge to obtain the product placement necessary to maximize sales, particularly among the limited number of major retailers who comprise our core brick and mortar customers.  The continued retailer trend toward greater visibility for titles at the expense of quantity (i.e., “face out” rather than “spine out” placement) has the effect of reducing the total number of titles actually carried by a retailer.

We cannot accurately predict the overall effect shifting audience tastes, technological change or the availability of alternative forms of entertainment may have on distributors.  In addition to uncertainty regarding the DVD market, there is uncertainty as to whether other developing distribution channels and formats, such as VOD and internet distribution of television and films, will attain expected levels of public acceptance, or if such channels or formats are accepted by the public, whether we will be successful in exploiting the business opportunities they provide.  Moreover, to the extent that these emerging distribution channels and formats gain popular acceptance, the demand for delivery through DVDs may decrease.

Our revenues and results of operations may fluctuate significantly. Our results of operations are difficult to predict and depend on a variety of factors. Our results of operations depend significantly upon the commercial success of the television programming and feature films that we exploit, which cannot be predicted with certainty.  In particular, the underperformance of the VOD or SVOD window of one or more motion pictures in any period may cause our revenue and earnings results for that period (and potentially, subsequent periods) to be less than anticipated, in some instances to a significant extent. Accordingly, our results of operations may fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future periods.

Our results of operations also fluctuate due to the timing, mix, number and availability of our broadcast, home entertainment and theatrical motion picture releases, as well as license periods for our content.   Our operating results may increase or decrease during a particular period or year due to differences in the number and/or mix of films released compared to the corresponding period in the prior year.

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Risks Relating to Our Stock

Our stock price may be subject to substantial volatility, and stockholders may lose all or a substantial part of their investment.  Our common stock currently trades on the Nasdaq Capital Market (NASDAQ).  There is limited public float, and trading volume historically has been low and sporadic.  As a result, the market price for our common stock may not necessarily be a reliable indicator of our fair market value.  The price at which our common stock trades may fluctuate as a result of a number of factors, including the number of shares available for sale in the market, quarterly variations in our operating results, actual or anticipated announcements of new releases by us or competitors, the gain or loss of significant customers, changes in the estimates of our operating performance, fluctuations in the fair value of our common stock warrant liability and market conditions in our industry and the economy as a whole.

Any future sales of equity may significantly affect the market price of our common stock. Future sales of substantial amounts of our common stock, including shares that we may issue upon exercise of outstanding warrants, or other convertible securities, if any, could adversely affect the market price of our common stock.  Further, if we raise additional funds through the issuance of common stock or securities convertible into or exercisable for common stock, our stockholders may experience substantial dilution and the price of our common stock may fall.  New equity securities issued may also have greater rights, preferences or privileges than our existing common stock.

Additional authorized shares of common stock available for issuance may adversely affect the market.  We are authorized to issue 250,000,000 shares of our common stock.  As of April 30, 2015, we had 12,895,772 shares of our common stock issued and outstanding, excluding shares issuable upon exercise of our outstanding warrants. As of April 30, 2015, we had outstanding warrants to purchase 21,041,667 shares of our common stock at a price of $12.00 per share. To the extent the shares of common stock are issued or warrants are exercised, holders of our common stock will experience dilution. In addition, our financing composed of securities convertible into or exchangeable for common stock will result in dilution to holders of our common stock.

 We may choose to redeem our outstanding warrants at a time that is disadvantageous to the warrant holders.  Subject to there being a current prospectus under the Securities Act of 1933, as amended, we may redeem all of our outstanding warrants at any time at a price of $0.01 per warrant, upon a minimum of 30 days prior written notice of redemption if, and only if, the last sale price of shares of our common stock equals or exceeds $17.50 per share for any 20 trading days within a 30 trading-day period ending three business days before we send the notice of redemption. If we were to call all of our outstanding warrants for redemption, the warrant holders could be forced:

§ To pay the cash exercise price for such warrants at a time when it may be disadvantageous for the holders to do so;

§ To sell the warrants at the then current market price when they might otherwise wish to hold the warrants; or

§ To accept the nominal redemption price, which at the time the warrants are called for redemption, is likely to be substantially less than the market value of the warrants.

Provisions in our amended and restated articles of incorporation and Nevada law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our common stock and could entrench management. Our amended and restated articles of incorporation contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.

We are also subject to anti-takeover provisions under Nevada law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.

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We have disclosed a material weakness in our internal control over financial reporting relating to the review of content ultimates and the preparation and review of reconciliations that could adversely affect our ability to report our financial condition and results of operations accurately and on a timely basis.  In connection with our assessment of internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 for fiscal 2014, we identified a material weaknesses in our internal control over financial reporting relating to the review of content ultimates and the preparation and review of reconciliations. For a discussion of our internal control over financial reporting and a description of the identified material weakness, see “Management’s Annual Report on Internal Control over Financial Reporting” under Item 9A, “Controls and Procedures.”

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of the annual report, management identified errors that, although not material to the consolidated financial statements, led management to conclude that control deficiencies exist related to the review of content ultimates and the preparation and review of reconciliations. During fiscal 2015, the Company commenced a remediation plan to address these control deficiencies.

A material weakness in our internal control over financial reporting could adversely impact our ability to provide timely and accurate financial information. If we are unsuccessful in implementing or following our remediation plan, we may not be able to timely or accurately report our financial condition or results of operations or maintain effective disclosure controls and procedures. If we are unable to report financial information timely and accurately or to maintain effective disclosure controls and procedures, we could be subject to, among other things, regulatory or enforcement actions by the SEC and NASDAQ, including a delisting from the NASDAQ, which could adversely affect the valuation of our common stock and could adversely affect our business prospects.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

RLJE’s principal executive office is located in Silver Spring, Maryland.  We also maintain offices in Woodland Hills, California; Stillwater, Minnesota; London, England and Sydney, Australia with varying terms and expiration dates.  All locations are leased.  A summary of our locations is as follows:

Location	Primary Purpose	Lease Expiration	Reporting Segment (1)
Silver Spring, MD	Executive Office/Administrative/Sales/ Content Acquisition	November 15, 2020	Corporate
Woodland Hills, CA	Administrative/Sales/Content Acquisition	June 30, 2021	Wholesale
Stillwater, MN	Sales and Administration for Direct-to-Consumer	April 30, 2022	Direct-to-Consumer
London, England	Content Development and Production/Sales/ Administration for the U.K., including ACL	July 1, 2018	IP Licensing/Wholesale/ Direct-to-Consumer
Sydney, Australia	Sales/Administration	March 1, 2017	Wholesale

 ⁽¹⁾  The segment descriptions above reflect the location’s primary activity.

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We believe that our current offices are adequate to meet our business needs, and our properties and equipment have been well maintained.

ITEM 3. LEGAL PROCEEDINGS

In the normal course of business, we are subject to proceedings, lawsuits and other claims, including proceedings under government laws and regulations relating to content ownership and copyright matters.  While it is not possible to predict the outcome of these matters, it is the opinion of management, based on consultations with legal counsel, that the ultimate disposition of known proceedings will not have a material adverse effect on our financial condition, results of operations or liquidity.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is traded on The NASDAQ Capital Market^® under the symbol “RLJE” and our warrants are quoted on the Over-The-Counter Bulletin Board (or OTCBB) under the symbol “RLJEW.”  The table below presents the quarterly high and low closing sales prices of our common stock and warrants as reported by NASDAQ and the OTCBB, respectively.

	Common Stock				Warrants
	High		Low		High		Low
2014
First quarter	$	5.01	$	4.31	$	0.40	$	0.22
Second quarter	$	4.38	$	3.36	$	0.30	$	0.22
Third quarter	$	3.90	$	2.28	$	0.22	$	0.05
Fourth quarter	$	4.04	$	1.98	$	0.25	$	0.08
2013
First quarter	$	5.19	$	3.55	$	0.28	$	0.15
Second quarter	$	4.90	$	3.66	$	0.22	$	0.17
Third quarter	$	6.07	$	4.50	$	0.37	$	0.22
Fourth quarter	$	5.36	$	4.06	$	0.50	$	0.21

Stockholders

As of April 30, 2015, there were 12,895,772 shares of our common stock outstanding, which were held by approximately 338 holders of record, and warrants to purchase approximately 21,041,667 shares of our common stock issued and outstanding, which were held by approximately 30 holders of record.  The number of holders of record does not include the number of persons whose securities are in nominee or “street name” accounts through brokers.

Dividend Policy

We have not paid any cash dividends on our common stock to date. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition. The payment of any dividends will be within the discretion of our board of directors at such time. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board of directors does not anticipate declaring any dividends in the foreseeable future. In addition, our Credit Agreement restricts our ability to pay dividends on our common stock.  For more information on these restrictions, please refer to Note 10, Debt of our Consolidated Financial Statements and in the Capital and Liquidity sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations (or MD&A).

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Purchases of Equity Securities by the Issuer and Affiliated Purchasers

RLJ SPAC Acquisition LLC, an affiliate of the Company, has purchased shares of our common stock in the open market and through block purchases pursuant to a 10b5-1 plan.  Robert L. Johnson, the Chairman of the Board of the Company, is the sole manager and sole voting member of RLJ SPAC Acquisition LLC. The table below sets forth information regarding purchases of our common stock by RLJ SPAC Acquisition LLC during the quarter ended December 31, 2014:

Period	Total Number of Shares  Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or  Programs		Approximate Dollar Value of Shares that May  Yet be Purchased Under Publicly Announced Plans or Programs
October 1, 2014 to October 31, 2014		24,936	$	3.79		24,936	$	350,363
November 1, 2014 to November 30, 2014		—	$	—		—	$	350,363
December 1, 2014 to December 31, 2014		—	$	—		—	$	350,363

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth certain information as of December 31, 2014 with respect to our equity compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance, aggregated by (i) all compensation plans previously approved by our security holders, and (ii) all compensation plans not previously approved by our security holders:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average  exercise price of  outstanding options,  warrants and rights		Number of securities remaining available for future issuance under  equity compensation plans  (excluding securities referenced in  the first column) (1)
Equity compensation plans approved by security holders		––	$	––		787,668
Equity compensation plans not approved by security holders:		––		––		––
Total		––	$	––		787,668

(1) Represents shares available for grant in the future under our 2012 Incentive Compensation Plan.

Additional information with respect to the shares of our common stock that may be issued under our existing stock-based compensation plans is disclosed in our consolidated financial statements in Note 13, Stock-Based Compensation.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions.  As described under the heading "Forward-Looking Statements" of this Annual Report, our actual results could differ materially from those anticipated in our forward-looking statements.  Factors that could contribute to such differences include those discussed elsewhere in this Annual Report, including in Item 1A of this Annual Report under the heading “Risk Factors.”  You should not place undue reliance on our forward-looking statements, which apply only as of the date of this Annual Report.  Except as may be required under federal law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur.

You should read the following discussion and analysis in conjunction with our consolidated financial statements and related footnotes included in Item 8 of this Annual Report.

OVERVIEW

General

RLJ Entertainment, Inc. (or RLJE) is a global entertainment company with a direct presence in North America, the United Kingdom (or U.K.) and Australia and strategic sublicense and distribution relationships covering Europe, Asia and Latin America.  RLJE was incorporated in Nevada in April 2012.  On October 3, 2012, we completed the business combination of RLJE, Image Entertainment, Inc. (or Image) and Acorn Media Group, Inc. (or Acorn Media or Acorn), which is referred to herein as the “Business Combination.”  Acorn Media includes its subsidiaries RLJE International Ltd (or RLJE U.K.), RLJ Entertainment Australia Pty Ltd. (or RLJE Australia) and RLJ Entertainment Ltd (or RLJE Ltd).  In February 2012, Acorn Media acquired a 64% ownership of Agatha Christie Limited (or ACL).  References to Image include its wholly-owned subsidiary Image/Madacy Home Entertainment, LLC.  “We,” “our” or “us” refers to RLJE and its subsidiaries, unless otherwise noted.  Our principal executive offices are located in Silver Spring, Maryland, with additional U.S. locations in Woodland Hills, California, and Stillwater, Minnesota, and international locations in London, England and Sydney, Australia.

RLJE is a global media company for distinct, passionate audiences.  We strive to be a preferred source and destination for entertainment for a variety of distinct audiences with particular and special programming interests.  We acquire, develop and exploit television, film and other media content agnostically across all platforms of distribution.  We actively manage all windows of exploitation to optimize the reach of our promotional efforts and maximize the value of our releases.

We acquire content rights in various categories, with particular focus on British mysteries and dramas, urban programming, and full-length independent motion pictures.  We also develop, produce, and own original programming through our wholly-owned subsidiary, RLJE Ltd, and our majority-owned subsidiary, ACL, in addition to the development and production of fitness titles through our Acacia brand.  We have a library of titles segmented into genre-based brands such as Acorn (British drama and mystery television), Image (action, thriller and horror feature films), Urban Movie Channel or “UMC” (urban), Acacia (fitness), Athena (life-long learning documentaries) and Image/Madacy (uniquely packaged collections of classic television, historical footage and films).  Our owned content includes 28 Foyle’s War made-for-TV films, multiple fitness/wellness titles, and through our 64% ownership of ACL, the vast majority of the works of Agatha Christie.

We exploit our products through a multi-channel strategy encompassing (1) the licensing of original drama and mystery content managed and developed through our wholly-owned subsidiary, RLJE Ltd, and our majority-owned subsidiary, ACL, (IP Licensing segment); (2) wholesale exploitation through partners covering broadcast and cable, digital, online, and retail outlets (Wholesale segment); and (3) direct relations with consumers via proprietary e-commerce, mail-order catalog, and SVOD channels (Direct-to-Consumer segment).

RLJE Ltd manages our British drama co-productions, including Foyle’s War, which is one of our most successful Acorn television series, and the intellectual property rights owned by ACL including all the TV/film and publishing revenues associated with those rights.  ACL is home to some of the world’s greatest works of mystery fiction, including Murder on the Orient Express and Death on the Nile and includes all development rights to iconic sleuths such as Hercule Poirot and Miss Marple.  The Agatha Christie library includes approximately 80 novels and short story collections, 19 plays and a film library of over 100 made-for-television films.  In 2013, ACL commissioned a new writer to expand the Agatha Christie library content, and in the third quarter of 2014, ACL published its first book, The Monogram Murders, since the death of Agatha Christie.

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Our wholesale partners are broadcasters, digital outlets and major retailers in the U.S., Canada, United Kingdom and Australia, including, among others:  DirecTV, Showtime, BET, PBS, Netflix, Amazon, Hulu, Walmart, Target, Costco, Barnes & Noble, HMV and iTunes.  We work closely with our wholesale partners to outline and implement release and promotional campaigns customized to the different audiences we serve and the program genres we exploit.

Our Direct-to-Consumer segment includes our proprietary SVOD channels, which are Acorn TV, Acacia TV and UMC, and the sale of video content and complementary merchandise directly to consumers through proprietary e-commerce websites and mail-order catalogs.  As of December 31, 2014, Acorn TV had over 118,000 paying subscribers.  In late 2014, we launched our urban content SVOD channel, UMC.  In response to the strategic opportunity brought by the convergence of television and the internet, we expect to continue to invest in more exclusive and appealing content programming, greater marketing support and an expanded IT infra-structure for our SVOD channels.  We also plan to develop other audience-based, premium SVOD channels based on our existing content library.

RLJE’s management views our operations based on these three distinctive reporting segments: (1) IP Licensing; (2) Wholesale; and (3) Direct-to-Consumer.  Operations and net assets that are not associated with any of these stated segments are reported as “Corporate” when disclosing and discussing segment information.  The IP Licensing segment includes intellectual property rights that we own or create and then sublicense for exploitation worldwide.  Our Wholesale and Direct-to-Consumer segments consist of the acquisition, content enhancement and worldwide exploitation of exclusive content in various formats, including broadcast, DVD and Blu-ray, and digital (which include VOD, SVOD, streaming, and downloading).  We also sublicense certain distribution rights to others to cover territories outside the U.S., the U.K., and Australia.  The Wholesale segment exploits content through third-party vendors such as DirecTV, Showtime, BET, Netflix, Amazon, Walmart, Best Buy, Target and Costco, while the Direct-to-Consumer segment exploits the same content and complementary merchandise directly to consumers through our proprietary e-commerce websites, mail-order catalogs and digitally streaming channels.

Revenue Sources

Net revenues by reporting segment as a percentage of total net revenues for the periods presented are as follows:

	Years Ended December 31,
(In thousands)	2014			2013
IP Licensing (1)		6.4	%		4.9	%
Wholesale		66.4	%		70.0	%
Direct-to-Consumer		27.2	%		25.1	%
Total revenues		100.0	%		100.0	%

(1) Reported net revenues exclude revenues generated by our 64% owned subsidiary, ACL, which is accounted for under the equity method of accounting.

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Revenues by geographical area as a percent of the total revenues are as follows:

	Years Ended December 31,
(In thousands)	2014			2013
United States		81.6	%		84.4	%
United Kingdom		17.1	%		14.6	%
Other		1.3	%		1.0	%
Total revenues		100.0	%		100.0	%

Wholesale Segment

DVD and Blu-ray

Our primary source of revenues within the Wholesale segment continues to be from the exploitation of exclusive content on DVD and Blu-ray through third-party vendors such as Walmart, Best Buy, Target Costco, and Amazon.

Digital, VOD and Broadcast

Revenues derived from digital and broadcast exploitation of our content continue to rapidly grow as a percentage of revenues.  Net revenues derived from digital, VOD, third-party SVOD and broadcast exploitation account for approximately 30.3% of the segment’s revenues in 2014 versus 23.4% in 2013.  This is consistent with consumer adoption trends. As retailers continue to offer consumer-friendly devices that make access to these on-demand services easier, including allowing consumption on portable devices such as smartphones and tablets, we believe we are well-positioned to capture business in this growing distribution channel.

Other Licensing

We continue our efforts to acquire more programming with international rights.  Our key sublicensing partners, which cover territories outside the U.S., the U.K. and Australia, are with Universal Music Group International, BET International, Warner Music Australia, ITV Studios, British Broadcasting Corporation (or BBC) and Universal Pictures Australia.  To date, most of the feature films we have acquired do not include rights outside of North America.  However, given our presence in the United Kingdom and Australia, we are focusing our efforts to acquire more programming in all English-language markets.  When appropriate, we now seek the greatest variety of distribution rights regarding acquired content in the greatest variety of formats.  We believe that this will allow us to further diversify revenue streams.

Direct-to-Consumer Segment

Our Direct-to-Consumer businesses are primarily in the U.S. and U.K. and comprise approximately one-fourth of our overall revenue base.  Non-video revenues include the sale of retail merchandise such as attire for women and men, home furnishings and decorator items and collectables.  Video revenues in our catalogs and website orders consist of the sale of owned and licensed video content in DVD, Blu-ray, and digital formats and is generally the same content that is also sold to third parties through the Wholesale segment.

A majority of the Direct-to-Consumer segment revenues are derived from our mail-order catalogs, which also includes website orders.  The remaining revenues were derived from our online, proprietary, subscriber-based SVOD channels.  During 2014, revenues from our subscriber-based SVOD channels totaled $4.1 million, which represents an increase of 745% when compared to 2013.

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IP Licensing Segment

Our television drama productions are generally financed by the pre-sale of the initial broadcast license rights.  Revenues reported in this segment include the initial broadcast license revenue, generally from the U.K. territory, and sublicense revenue for other territories outside the U.S., U.K. and Australia.

Cost Structure

Our most significant costs and cash expenditures relate to acquiring or producing content for exclusive exploitation.  However, in 2013 we incurred significant impairment charges of $12.9 million that were related to our inventory and our investments in content compared to $7.1 million in 2014.  The higher costs in 2013 were largely attributable to the early termination of a feature-film output deal.

We generally acquire programming through exclusive license or distribution agreements, under which we either (1) pay royalties or (2) receive distribution fees and pay net profits after recoupment of our upfront costs.  Upon entering into a typical license (royalty) agreement, we pay an advance based on the estimated expected future net profits.  Once the advance payment has been recouped, we pay royalties to the content suppliers quarterly based on the net revenues collected from the previous quarter.  Under a typical exclusive distribution agreement, we may pay upfront fees, which are expressed as advances against future net profits.  Once the advance is recouped, we pay the content supplier their share of net cash-profits, which is after our distribution fee, from the prior quarter’s exploitation.

In addition to advances, upfront fees and production costs, the other significant expenditures we incur are:

§ DVD/Blu-ray authoring and replication and digitalization of program masters;

§ Packaging;

§ Advertising, promotion, and marketing funds provided to wholesale partners;

§ Domestic shipping costs from self-distribution of exclusive content;

§ Personnel; and

§ Interest.

We strive to achieve long-term, sustainable growth and profitability with a target return on investment (ROI) of 20% or more on new content acquisitions.  This financial target is based on all up-front expenses associated with the acquisition and release of a title, including advances and development costs, and is calculated after allocating overhead costs.

We also seek to maximize our operational cash flow and profitability by closely managing our marketing and discretionary expenses, and by actively negotiating and managing collection and payment terms.

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2014 FINANCIAL HIGHLIGHTS

Highlights and significant events for the year ended December 31, 2014 are as follows:

§ Gross profit increased by $4.0 million or 12.5% when comparing 2014 results to 2013.

§ The gross margin increased to 26.3% for the year ended December 31, 2014 compared to 19.5% for the year ended December 31, 2013.  Excluding the effects of the terminated feature-film output deal, gross margin was 28.3% and 25.5%, for the years ended December 31, 2014 and 2013, respectively.

§ On September 11, 2014, we entered into a $70.0 million Credit and Guaranty Agreement (the “Credit Agreement”).  The new Credit Agreement is expected to improve our liquidity and future cash flows by approximately $15.0 million through December 2015 by reducing future debt service requirements.

§ Operating expenses (or SG&A) continue to be managed closely.  SG&A decreased by $4.9 million when comparing the year ended December 31, 2014 to the same period in 2013.  The decline in SG&A is mostly attributed to the synergistic savings from integrating the combination of the two companies over the last year.

The highlights above and the discussion below are intended to identify some of our more significant results and transactions during 2014 and should be read in conjunction with our consolidated financial statements and related discussions within this Annual Report.

RESULTS OF OPERATIONS

A summary of the U.S. GAAP results of operations for the years ended December 31, 2014 and 2013, as disclosed in our consolidated financial statements in Item 8, Financial Statements and Supplementary Data, herein referred to as our “consolidated financial statements” is as follows:

	Years Ended December 31,
(In thousands)	2014			2013
Revenues	$	137,689		$	164,830
Costs of sales		101,454			132,631
Gross profit		36,235			32,199
Operating expenses		50,866			55,814
Loss from operations		(14,631	)		(23,615	)
Equity earnings of affiliates		2,580			3,296
Interest expense, net		(9,459	)		(8,279	)
Change in fair value of stock warrants		3,522			201
Loss on extinguishment of debt		(1,457	)		—
Other expense		(1,356	)		(479	)
Provision for income taxes		(399	)		(2,201	)
Net loss	$	(21,200	)	$	(31,077	)

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Revenues

The comparability of our revenues between years is affected by the early termination of a feature-film output deal, which was effective December 31, 2013 and for which we completed an inventory sell-off period during the first quarter of 2014.  The feature-film output deal was previously scheduled to expire in 2017.  We terminated this arrangement because our return on investment (or ROI) was lower than our targeted threshold of 20%.  A summary of net revenue by segment with and without the terminated output deal revenue for the years ended December 31, 2014 and 2013 is as follows:

	Years Ended December 31,
(In thousands)	2014			2013
Wholesale Revenue:
U.S.	$	77,057		$	101,387
Terminated Image output deal		1,059			(21,927	)
U.S. excluding output deal		78,116			79,460
International		14,322			14,010
Total Wholesale		92,438			93,470
Direct-to-Consumer
Ecommerce Catalog U.S.		31,168			38,391
Proprietary Digital Channels		4,126			488
International Ecommerce		2,264			2,535
Total Direct-to-Consumer		37,558			41,414
Intellectual Property		8,752			8,019
Total revenues excluding terminated output deal revenues		138,748			142,903
Terminated output deal revenues		(1,059	)		21,927
Total Revenues	$	137,689		$	164,830

Revenue for the year ended December 31, 2014 decreased $27.1 million when compared to year ended December 31, 2013.  The decrease in revenue was primarily due to the decline of $24.3 million in revenue within our Wholesale segment revenues generated in the U.S., which was $77.1 million and $101.4 million for the years ended December 31, 2014 and 2013, respectively.  This decline is primarily attributed to the revenues related to the terminated output deal which were negative revenues of $1.1 million for 2014 compared to revenue of $21.9 million in 2013.  Excluding the impact of the terminated output deal, Wholesale segment revenue decreased by 1.0% or $1.0 million year-over-year.

The Direct-to-Consumer segment consists of proprietary e-commerce websites, mail-order catalogs and digitally streaming SVOD channels in both the U.S. and U.K.  Revenue from our Direct-to-Consumer segment decreased $3.9 million when comparing the year ended December 31, 2014 to 2013.  The decrease in revenue in the Direct-to-Consumer segment was due to lower catalog sales of $7.5 million as a result of reduced circulation and increased backorders, which were due to customer orders not shipping during the year due to limited availability of cash to replenish inventory levels.  Our Direct-to-Consumer revenues benefited from revenue growth from the proprietary SVOD channels, primarily Acorn TV, which generated revenue of $4.1 million in 2014 compared to $488,000 in 2013.  The driver of this increased revenue in our SVOD channels is an increase in Acorn TV’s paying subscribers to 118,000 at December 31, 2014 from 57,000 at December 31, 2013.  During 2014, we launched two additional proprietary SVOD channels, Acacia and UMC.  Currently, revenues from these newly launched channels are immaterial, but we expect the revenues from these SVOD channels to increase in future years.  We are continually rolling-out new content on our digital channels, which we believe is a key factor in attracting new subscribers for all of channels.

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Our IP Licensing segment revenues comprise the initial broadcast licensing in the U.K. and sublicensing of our owned intellectual property for exploitation primarily in Europe and Asia.  The IP licensing segment revenue for the year ended December 31, 2014 increased by $733,000 when compared to the same period in 2013.  This increase is attributable to increased broadcast revenue for the Foyle’s War current season released in 2014 as compared to the prior season.  Also included within the IP Licensing segment is our 64% majority interest in ACL.  As ACL is not a consolidated entity, we do not report any revenues from ACL, but instead include our share of ACL’s earnings, including revenues, within “equity earnings in affiliate” within our consolidated financial statements.

Cost of Sales (“COS”) and Gross Margins

A summary of COS by segment and overall gross margins for the years ended December 31, 2014 and 2013 is as follows:

	Years Ended December 31,
(In thousands)	2014			2013
IP Licensing	$	6,213		$	7,768
Wholesale		71,615			99,480
Direct-to-Consumer		21,626			25,383
Total COS	$	101,454		$	132,631
Gross Margin	$	36,235		$	32,199
Gross Margin %		26.3	%		19.5	%

COS decreased by $31.2 million to $101.4 million for the year ended December 31, 2014, when compared to the same period in 2013.  The decrease in COS is primarily attributed to a decline in Wholesale segment’s COS, which corresponds to the decrease in revenue related to the termination of the aforementioned feature-film output deal.  During 2014 and 2013, we recorded COS under the terminated output deal of $2.0 million and $26.3 million, respectively.  COS within our Wholesale segment also includes impairment and other charges recognized during the second quarter of 2013 that aggregate to approximately $3.4 million and were primarily related to the transition of the Image/Madacy content line and the consolidation of distributors.  These costs did not repeat in 2014.

In addition, COS decreased by $3.8 million in our Direct-to-Consumer segment when comparing the year ended December 31, 2014 to 2013.  The decrease in COS for the Direct-to-Consumer segment is primarily due to reduced sales in our catalog business as discussed above in the Direct-to-Consumer revenue discussion.

The decrease from 2013 to 2014 in COS for the IP Licensing segment of $1.6 million is due to increased margins on our current season of Foyle’s War as compared to the prior season, which was released last year.

Our gross margin increased to 26.3% from 19.5% for the years ended December 31, 2014 and 2013, respectively.  The increase in margin was the result of (i) changes implemented in management’s investment criteria for content acquisitions, which require a targeted ROI of at least 20%, (ii) the termination of the feature-film output deal, and (iii) the impact of certain aforementioned charges and impairments that were incurred in 2013, which did not repeat in 2014.

Included in our COS is amortization from the step-up of investments in content resulting from our Business Combination on October 3, 2012.  During the years ended December 31, 2014 and 2013, we recognized step-up amortization on our investments in content of $7.7 million and $7.2 million, respectively.

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Operating Expenses (“SG&A”)

The following table includes a summary of the components of SG&A:

	Years Ended December 31,
(In thousands)	2014		2013
Selling expenses	$	24,510	$	26,830
General and administrative expenses		19,681		22,810
Depreciation and amortization		5,694		6,174
Goodwill impairment		981		—
Total operating expenses	$	50,866	$	55,814

SG&A decreased by $4.9 million for the year ended December 31, 2014, compared to the same period in 2013. The decrease in SG&A is primarily related to the synergistic savings related to the combining of Acorn and Image legacy companies after the Business Combination and the delay and reduced circulation of our Direct-to-Consumer segment’s mail-order catalogs due to limited cash when compared to the same periods in 2013.  Most of our integration efforts were conducted during 2013, yet integration of the combined businesses continued into 2014.  During 2014 and 2013, we incurred severance charges of $548,000 and $2.4 million, respectively.

Equity Earnings of Affiliates

Equity earnings in affiliates for the years ended December 31, 2014 and 2013 were $2.6 million and $3.3 million, respectively.  The decrease in equity earnings in affiliates (which is ACL) is mostly attributed to the release of the last Poirot television series and the last Miss Marple television series in 2013 with no similar releases during 2014.

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Interest Expense

Interest expense for the year ended December 31, 2014 was $9.5 million compared to $8.3 million for the same period in 2013.  Interest expense increased during the current year due to the increased balance owed under the new Credit Agreement at December 31, 2014 of $69.4 million versus the prior credit facility balance at December 31, 2013 of $63.2 million.  The increase is also attributable to an increased interest rate payable under the new Credit Agreement when compared to the prior credit facility.

Change in Fair Value of Stock Warrants

The change in the fair value of our warrant liability impacts the statement of operations whereby a decrease in the warrant liability results in the recognition of income, while an increase in the warrant liability results in the recognition of expense.  For the year ended December 31, 2014 and 2013, the fair value of our warrants decreased by $3.5 million and $201,000, respectively.  Changes in our warrants’ fair value are primarily driven by changes in our common stock price and volatility of our common stock price.

Loss on Extinguishment of Debt

When entering into the new Credit Agreement, we recognized a loss on extinguishment of debt of $1.5 million in the third quarter of 2014.  The loss primarily represents the expensing of unamortized debt discounts and deferred financing costs associated with the prior credit facility.

Other Income (Expense)

Other income (expense) mostly consists of foreign currency gains and losses resulting primarily from advances and loans by our U.S. subsidiaries to our foreign subsidiaries that have not yet been repaid.  Our foreign currency gains and losses are primarily impacted by changes in the exchange rate of the British Pound Sterling (or the Pound) relative to the U.S. dollar (or the Dollar).  As the Pound strengthens relative to the Dollar, we recognized other income; and as the Pound weakens relative to the Dollar, we recognize other expense.  From January through July of 2014, the Pound was strengthening relative to the Dollar, yet these gains were entirely reversed during the third and fourth quarter of 2014.  In 2013, we experienced the opposite with the Pound generally weakening against the Dollar from January through July of 2013, and then partially recovered in in the latter part of 2013.  As a result, for the years ended December 31, 2014 and 2013, we recognized a foreign currency loss of $1.1 million and $484,000, respectively.

Income Taxes

We have fully reserved our net U.S. deferred tax assets, and such tax assets may be available to reduce future income taxes payable should we have U.S. taxable income in the future. To the extent such deferred tax assets relate to net operating losses (or NOL) carryforwards, the ability to use our NOL carryforwards against future earnings will be subject to applicable carryforward periods and limitations subsequent to a change in ownership. As of December 31, 2014, we had NOL carryforwards for federal and state income tax purposes of approximately $67.9million and approximately $60.7 million, respectively.

We recorded income tax expense of $399,000 and $2.2 million for the years ended December 31, 2014 and 2013, respectively.  Our tax provision consists primarily of a deferred tax provision for certain deferred tax liabilities and a current tax provision for our U.K. operations.  We are amortizing for tax purposes a portion of our goodwill. This tax amortization, offset by goodwill impairments, creates a deferred tax provision and deferred tax liability. We are also recording a deferred tax provision and liability for our equity earnings of affiliates (ACL).  These earnings will be taxable in the U.K., when and if we dispose of our investment.  We provide current income tax expense on pre-tax income from our consolidated U.K. subsidiaries at an effective tax rate of approximately 21%.  We are not providing a current tax provision (benefit) on our U.S. operations, other than for certain state minimum taxes, which are immaterial.

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Adjusted EBITDA

Management believes Adjusted EBITDA to be a meaningful indicator of our performance that provides useful information to investors regarding our financial condition and results of operations because it removes material noncash items that allows investors to analyze the operating performance of the business using the same metric management uses.  The exclusion of noncash items better reflects our ability to make investments in the business and meet obligations.  Presentation of Adjusted EBITDA is a non-GAAP financial measure commonly used in the entertainment industry and by financial analysts and others who follow the industry to measure operating performance. The Company uses this measure to assess operating results and performance of its business, perform analytical comparisons, identify strategies to improve performance and allocate resources to its business segments. While management considers Adjusted EBITDA to be important measures of comparative operating performance, it should be considered in addition to, but not as a substitute for, net income and other measures of financial performance reported in accordance with US GAAP. Not all companies calculate Adjusted EBITDA in the same manner and the measure as presented may not be comparable to similarly-titled measures presented by other companies.

The following table includes the reconciliation of our consolidated U.S. GAAP net loss to our consolidated Adjusted EBITDA:

	Years Ended December 31,
(In thousands)	2014			2013
Net loss	$	(21,200	)	$	(31,077	)
Amortization of content		58,807			75,345
Cash investment in content		(44,611	)		(50,239	)
Depreciation and amortization		5,694			6,174
Interest expense		9,459			8,279
Loss on extinguishment of debt		1,457			—
Goodwill impairment		981			—
Provision for income tax		399			2,201
Severance		548			2,369
Warrant liability fair value adjustment		(3,522	)		(201	)
Stock-based compensation		769			805
Adjusted EBITDA	$	8,782		$	13,656

Adjusted EBITDA includes the impact of $(3.0) million and $442,000 for 2014 and 2013, respectively, from the terminated output deal.

A reconciliation of Adjusted EBITDA to our net increase (decrease) in cash as reported in our consolidated statements of cash flows is as follows:

	Years Ended December 31,
(In thousands)	2014			2013
Adjusted EBITDA	$	8,782		$	13,656
Cash interest expense		(7,145	)		(6,753	)
Net principal payments and refinancing costs		(1,361	)		(5,944	)
Current income tax provision		(211	)		(737	)
ACL dividends in excess of earnings		1,460			709
Capital expenditures		(1,655	)		(1,005	)
Changes in working capital		(1,062	)		(5,565	)
Severance		(548	)		(2,369	)
Foreign currency		728			(187	)
Net increase (decrease) in cash	$	(1,012	)	$	2,935

BALANCE SHEET ANALYSIS

Assets

Total assets at December 31, 2014 and 2013, were $192.1 million and $220.3 million, respectively.  The decline of $28.2 million in assets is mostly attributed to a decline in investments in content of $14.1 million, which is due to the amortization from the Business Combination’s fair value adjustments of $7.7 million and impairments $4.8 million, amortization of intangible assets of $4.8 million and a decline in our equity investment in ACL of $3.0 million.  The decline in our equity investment is due to a combination of dividends paid of $4.0 million being greater than our portion of net income from ACL of $2.6 million and a weakening Pound compared to the Dollar.

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   A summary of assets by segment is as follows:

(In thousands)	December 31,
	2014		2013
IP Licensing	$	30,197	$	36,127
Wholesale		140,935		160,968
Direct-to-Consumer		12,049		15,964
Corporate		8,873		7,211
	$	192,054	$	220,270

Liabilities and Equity

The decline of liabilities and equity of $28.2 million is mostly attributed to the net loss of $21.2 million for the year ended December 31, 2014, a decline in our accounts payable and accrued liabilities of $7.8 million and a decrease in our warrant liability of $3.5 million.  These decreases are partially offset by an increase in our debt of $4.6 million.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

A summary of our cash flow activities is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Net cash provided by (used in) operating activities	$	(1,615	)	$	6,550
Net cash provided by investing activities		2,385			3,000
Net cash used in financing activities		(1,361	)		(5,944	)
Effect of exchange rate changes on cash		(421	)		(671	)
Net increase (decrease) in cash		(1,012	)		2,935
Cash at beginning of period		7,674			4,739
Cash at end of period	$	6,662		$	7,674

At December 31, 2014 and 2013, our cash and cash equivalents were approximately $6.7 million and $7.7 million, respectively.  During the year ended December 31, 2014, our cash position was impacted by the following:

§ We incurred a net use of cash of $1.6 million resulting from our operating activities.  The net use of cash was largely attributable to management’s use of cash to pay off vendor trade payables and invest in content during a period of relative lower revenues and content amortization.  During the year ended December 31, 2014, we paid approximately $7.8 million of vendor trade payables.  The legacy Image business had significant short-term vendor debts, which were past due and which we are in the process of paying off by making increased cash payments or modifying payment terms in the short term.  Bringing our vendor trade payables current continues to constrain our liquidity.

§ Our quarterly results are typically affected by:  (a) the timing and release dates of key productions, (b) the seasonality of our Wholesale and Direct-to-Consumer business which are 32 – 35% weighted to the 4^th quarter and (c) we generally invest more cash on content during the first half of the year.

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The aggregate cash used in operating activities during the year ended December 31, 2014 was provided by our cash reserves as of December 31, 2013 and cash provided by our investing activities.  For the year ended December 31, 2014, significant factors affecting cash provided by or used in our investing and financing activities were:

§ Dividends received from ACL ($4.0 million);

§ Debt borrowing to finance the production of Foyle’s War 9 ($9.9 million), less repayments under the production facility ($11.2 million);

§ Repayment of senior debt and revolving credit facility ($63.8 million), offset by borrowings under the new Credit Agreement less deferred financing costs incurred ($63.8 million); and

§ Capital expenditures of $1.7 million.

Based upon the payment terms of the new Credit Agreement entered into on September 11, 2014, we expect to have improved liquidity of approximately $15.0 million through December 31, 2015 from the reduced future debt service requirements.

Prior to entering into the new Credit Agreement, we had curtailed our non-Foyle’s War content spending in 2014 to make our principal payments on the prior credit facility.  Our new Credit Agreement is expected to provide increased liquidity primarily through the reduction of near-term future principal payments.  The expected cash flow improvement will assist the Company in addressing legacy past due payables and other operating investments that have been deferred, which include providing capital for the launching of additional digital SVOD channels.

As of March 31, 2015, we were not in compliance with our minimum cash balance requirement of $3.5 million within our Credit Agreement.  This default was waived by our lenders on April 15, 2015.  We continue to experience liquidity constraints, and we are dependent upon growth in sales and margins to meet our liquidity needs and our debt covenants for the next twelve months.  On April 15, 2015, we amended our Credit Agreement to increase the likelihood that we will meet our future covenant requirements and amended our subordinated notes to reduce the applicable interest rate for two years.  We also improved our liquidity by selling on April 15, 2015 15,000 shares of Bridge Preferred Stock for $15.0 million, which stock is anticipated to be exchanged for convertible preferred stock.  The proceeds were used to make an accelerated principal payment of $10.0 million under our Credit Agreement, pay prepayment penalties, fees and expense of approximately $1.0 million, and approximately $4.0 million is available for working capital needs.  We believe that our current financial position combined with our forecasted operational results will be sufficient to meet our commitments.

We are currently exploring various equity financing alternatives and we have engaged an investment banker to help with raising capital.  We are currently in discussions with various investors.  However, at this time we have no commitments for additional funds, and there can be no assurance such funds will be available on acceptable terms or at all.  As a result of raising additional funds through the issuance of securities convertible into or exercisable for common stock, the percentage ownership of our stockholders will be significantly diluted, and these newly issued securities will have rights, preferences or privileges senior to those of existing stockholders.  Market and industry factors may harm the market price of our common stock and may adversely impact our ability to raise additional funds. Similarly, if our common stock is delisted from the NASDAQ Capital Market, it may limit our ability to raise additional funds.

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Capital Resources

Cash

As of December 31, 2014, we had cash of $6.7 million, as compared to $7.7 million as of December 31, 2013.

New Credit Agreement

On September 11, 2014, we entered into a $70.0 million Credit and Guaranty Agreement (the “Credit Agreement”) with a syndicate of lenders led by McLarty Capital Partners, as administrative agent. The Credit Agreement consists of a term loan totaling $70.0 million with a final maturity of five years, at an interest rate equal to (a) LIBOR plus 10.64% for so long as the unpaid principal amount of the Credit Agreement is greater than $65.0 million, and (b) LIBOR plus 9.9% thereafter with a floor of 0.25% for LIBOR.  The quarterly principal amortization is 3.5% for the first two years, 5.0% for the third year and 7.5% for the remaining term with any unpaid principal balance due at maturity.  The obligations under the Credit Agreement are secured by a lien on substantially all of our consolidated assets pursuant to the Pledge and Security Agreement, dated as of September 11, 2014.

Under the new Credit Agreement, interest and principal is payable quarterly with principal payments beginning on December 31, 2014. Initial quarterly principal payments are $613,000 through 2016, then increases to $875,000 through June 2017, and thereafter are $1.3 million.  Beginning in 2016, we are obligated to make certain accelerated principal payments annually which are contingent upon:  (1) the occurrence of consolidated excess cash flows, as defined in the Credit Agreement, and (2) only to the extent at which such excess cash flows are above our minimum cash threshold of $12.0 million.  We are permitted to make additional voluntary principal payments under the Credit Agreement, but prepayments are subject to an applicable prepayment premium of:  (a) 5% if prepaid during the first year, (b) 3% if prepaid during the second year, and (c) 1.5% if prepaid during the third year.  The first $5.0 million of voluntary prepayment is not subject to any prepayment premium.

We incurred $4.9 million in original issuance discounts and other related fees paid to lenders under the new Credit Agreement.  We also incurred $1.3 million in fees for legal and other professional services.  Repayment of our previous credit facility included principal and accrued interest of $56.1 million ($15.0 million for our revolving credit facility and $41.1 million for our term loans and accrued interest).

The new Credit Agreement contains certain financial and non-financial covenants beginning on December 31, 2014. Financial covenants are assessed quarterly and are based on Adjusted EBITDA, as defined in the Credit Agreement.  Financial covenants vary each quarter and generally become more restrictive over time.  The principal financial covenants are:  (1) Senior Debt Leverage Ratio that initially is 4.64 : 1.00 and declines to 2.67 : 1.00 by end of 2016 and for remainder term, (2) Total Debt Leverage Ratio that initially is 5.71 : 1.00 and declines to 3.44 : 1.00 by end of 2016 and for remainder term and (3) Fixed Charges Coverage Ratio that initially is 1.10: 1.00 and increases to 1.59 : 1.00 by end of 2016 and for remainder term.  As of December 31, 2014, we were in compliance with all debt covenants.  As of March 31, 2015, we were not in compliance with our minimum cash balance requirement of $3.5 million.  The default was waived by our lenders on April 15, 2015 (see below).

We are also obligated to maintain a minimum valuation ratio computed on the outstanding principal balance of our senior debt compared to the sum of our valuations of our content library and our investment in ACL.  To the extent the valuation ratio exceeds the allowed threshold, we are obligated to make an additional principal payment such that the threshold would not be exceeded after giving effect of this payment.  The valuation threshold is 83% as long as the unpaid principal balance exceeds $65.0 million and 75% thereafter.

The Credit Agreement contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross defaults to certain other contracts (including, for example, business arrangements with Sony Pictures Home Entertainment and other material contracts) and indebtedness and events constituting a change of control or a material adverse effect in any of our results of operations or conditions (financial or otherwise).  The occurrence of an event of default will increase the applicable rate of interest and could result in the acceleration of our obligations under the Credit Agreement.

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The Credit Agreement imposes restrictions on such items as encumbrances and liens, payments of dividends, other indebtedness, stock repurchases, capital expenditures and entering into new lease obligations.  The Credit Agreement also requires us to comply with minimum financial and operating covenants as disclosed above.  Additional covenants restrict our ability to make certain investments, such as loans and equity investments, or investments in content that are not in the ordinary course of business.  Pursuant to the new Credit Agreement, we must maintain at all times a cash balance of $3.5 million.  As of December 31, 2014, we were in compliance with our Credit Agreement.

When repaying the previous credit facility, we recognized a $1.5 million loss from the early extinguishment of debt, which is reported separately within our statement of operations.  This loss primarily represented the unamortized debt discount and deferred financing costs at the time of repayment of our prior credit facility.

On April 15, 2015, we entered into an amendment of our Credit Agreement (the Credit Agreement Amendment).  The principal terms of the Credit Agreement Amendment are as follows:

(a) a waiver of certain Defaults (as defined in the Credit Agreement) and Events of Default (as defined in the Credit Agreement) caused by, or that would be caused by the breach of certain financial covenants under the Senior Agreement;

(b) amendments of the Credit Agreement (i) modifying the interest rate to equal LIBOR plus 10.64%, (ii) modifying certain financial statement and other reporting and lender communication requirements, (iii) changing the Fixed Charge Coverage Ratio (as defined in the Credit Agreement) threshold to 0.73:1.00 for the quarter ending March 31, 2015, and 0.63:1.00 for the quarter ending June 30, 2015, (iv) changing the Senior Leverage Ratio (as defined in the Credit Agreement) limit to 7.50:1.00 for the quarter ending March 31, 2015, and 6.92:1.00 for the quarter ending June 30, 2015, (v) changing the Total Leverage Ratio (as defined in the Credit Agreement) limit to 9:00:1:00 for the quarter ending March 31, 2015, and 8.95:1.00 for the quarter ending June 30, 2015, and (vi) changing the Minimum Cash Balance (as defined in the Credit Agreement) that the Company is required to maintain to $1 million; and

(c) the consent of the lenders to the issuance of the Bridge Preferred Stock and the convertible preferred stock, which is anticipated to be issued in exchange for the Bridge Preferred Stock, as well as the use of the proceeds from the issuance of the Bridge Preferred Stock (i) to pay $10 million of the amounts outstanding pursuant to the Credit Agreement, (ii) to pay certain fees and costs associated with the issuance of the Bridge Preferred Stock and the convertible preferred stock, and (iii) for working capital purposes.

Subordinated Notes Payable and Other Debt

Upon consummation of the Business Combination, we issued unsecured subordinated promissory notes in the aggregate principal amount of $14.8 million to the selling preferred stockholders of Image.  The subordinated notes mature on the earlier of October 3, 2018 or six months after the latest stated maturity of the senior debt issued pursuant to the Credit Agreement.  The unsecured subordinated notes bear an interest rate of 12% per an annum, of which 5.4% is payable in cash annually and at our discretion the balance is either paid through the issuance of shares of our common stock valued at their then-current market price, or accrues and is added to the principal, which is payable upon maturity.  During the second quarter of 2014, interest was due of $1.8 million of which $992,000 was added to the principal balance of these notes and the remainder was paid to the debt holders.  At December 31, 2014, our principal balance due pursuant to these notes was $16.0 million.

On April 15, 2015 we entered into an amendment (the Note Amendment) of our unsecured subordinated promissory notes that were issued to the selling preferred stockholders of Image.  The principal terms of the Note Amendment are as follows:

(a) an agreement by the subordinated note holders to convert 50% of the outstanding balance under the subordinated notes into the convertible preferred stock;

(b) amendments to the subordinated notes (i) changing the interest rate payable from 12% to 1.5% per annum for the 24-month period commencing on January 1, 2015, and then 12% per annum thereafter; and (ii) specifying that 45% of the interest due will be payable in cash and the remainder of the accrued interest will be payable in the form of additional subordinated notes; and

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(c) a waiver of any existing defaults and events of default.

In October 2013, we began our production of the next season of the franchise series of Foyle’s War.  Acorn Productions Limited, and Acorn Global Enterprises Limited, both wholly-owned subsidiaries of RLJE Ltd., entered into a cash advance facility (the FW9 Facility) with Coutts and Co., a U.K. based lender, for purposes of producing three ninety-minute television programs entitled “Foyle’s War Series 9.” The facility carried interest at a rate of LIBOR plus 2.15%.  Interest and repayment of advances received were due on or before November 8, 2014.  This facility was substantially secured by (i) executed license agreements whereby we have pre-sold certain broadcast and distribution rights and (ii) U.K. tax credits based on anticipated qualifying production expenditures.  The assets and intellectual property are collateral of the Credit Agreement now that the loan is fully paid and settled.  At December 31, 2014, this production loan was fully repaid.

Preferred Stock

On April 15, 2015, we sold to a company owned by Robert L. Johnson, the Company’s chairman, 15,000 shares of Bridge Preferred Stock for $15.0 million in cash.  The rights of the Bridge Preferred Stock include a preference on any dividends paid, limited voting rights related to any amendment to the Bridge Preferred Stock, a liquidation preference of $1,000 per share, negative covenants with respect to certain events and a redemption right at 130% of the liquidation preference upon certain defaults or a change in control.

In connection with the sale of the Bridge Preferred Stock, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with  Mr. Johnson’s company.  Pursuant to the terms of the Purchase Agreement, if convertible preferred stock is issued to a third party within 60 days after the sale to Mr. Johnson’s company of the Bridge Preferred Stock, concurrently with the closing on the sale of convertible preferred stock to such third party, each holder of Bridge Preferred Stock is required to exchange its shares of Bridge Preferred Stock for the number of shares of convertible preferred stock that is equal in liquidation value to the purchase price paid by such holder for Bridge Preferred Stock and would receive the same rights and benefits as the other investors in the convertible preferred stock, including the issuance of warrants. If convertible preferred stock is not issued to a third party within 60 days after the sale to Mr. Johnson’s company of the Bridge Preferred Stock, promptly following such date, each holder of Bridge Preferred Stock is required to exchange its shares of Bridge Preferred Stock for the number of shares of convertible preferred stock that is equal in liquidation value to the purchase price paid by such holder for Bridge Preferred Stock pursuant to the terms of the last convertible preferred stock term sheet offered by the Company to a third party and would receive the same rights and benefits as set forth in such last term sheet, including the issuance of warrants. The conversion of such convertible preferred stock into, and the exercise of such warrants for, shares of the Company’s common stock would be subject to the approval of the stockholders of the Company.

The Company is currently seeking to complete a private placement of between $15 million and $30 million of preferred stock convertible into the Company’s common stock to selected institutional investors (including the contemplated exchange with Mr. Johnson’s company). Such convertible preferred stock  will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.  In connection with this placement, the Company has received a non-binding term sheet from a third party to purchase for cash $4,000,000 in liquidation value of convertible preferred stock and warrants to purchase common stock. The non-binding term sheet contemplates that the convertible preferred stock would:

Bear an 8% annual dividend, payable in kind for the first two years and thereafter payable quarterly in cash or freely-trading common stock, at the Company’s option. If common stock were used for the payment, it would be valued at 80% of the market price.

Be convertible into common stock at an initial conversion price of $1.00 per share, subject to anti-dilution adjustment.

Be subject to mandatory redemption on the fifth anniversary of the issuance date. The Company would be able to redeem with either cash or freely-tradable common stock. If common stock is used for the redemption, it would be valued at 80% of the market price.

46

The term sheet further contemplates the issuance of warrants to purchase an aggregate number of shares of common stock equal to 30% of the number of shares into which the convertible preferred stock is convertible on the date of issuance thereof. The Warrants would have a five year term and would have an exercise price of $1.50 per share, subject to anti-dilution adjustment. Investors in the convertible preferred stock also would receive certain other customary rights, including registration rights and anti-dilution protection.

The conversion of the convertible preferred stock into, and the exercise of the warrants for, shares of the Company’s common stock would be subject to the approval of the stockholders of the Company. The Company would hold a special meeting seeking stockholders approval no later than July 31, 2015. Prior to the closing on the issuance of the convertible preferred stock, the Company would be required to obtain proxies from directors, executive officers and greater than 5% stockholders holding at least 50% of the outstanding shares to vote in favor of the issuance of the convertible preferred stock and the warrants.

There is no assurance that the transaction set forth in the term sheet will be completed, that the terms of the actual issuance will not materially vary from the terms set forth in the term sheet or that the Company will be successful in obtaining other investors in the convertible preferred stock.

RELATED PARTY TRANSACTIONS

In the ordinary course of business we enter into transactions with related parties, primarily our equity method investee and entities owned and controlled by the Chairman of our Board of Directors. Information regarding transactions and amounts with related parties is discussed in Note 22, Related Party Transactions and Note 23, Subsequent Events of our consolidated financial statements.

NEW ACCOUNTING AND REPORTING PRONOUNCEMENTS

Since the filing of our 2013 Form 10-K, there were no new accounting pronouncements adopted.  A summary of the accounting pronouncement issued but, not required to be adopted for the preparation of our current financial statements is as follows:

On May 28, 2014, the Financial Accounting Standards Board issued an accounting standard update (or ASU) No. 2014-09, Revenue from Contracts with Customers (or ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for RLJE on January 1, 2017. Early application is not permitted. The standard permits the use of three transition methods. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We are also assessing the transition methods available to implement this new accounting standard.  This update could impact the timing and amounts of revenue recognized within our consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported in our consolidated financial statements.  Management considers an accounting policy to be critical if it is important to our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by management and the related disclosures have been reviewed with the Audit Committee of the Board of Directors of the Company. We consider the following accounting policies to be critical in the preparation of our consolidated financial statements:

47

Revenue Recognition

Revenue Recognition

Revenue is recognized upon meeting the recognition requirements of the Financial Accounting Standards Board Accounting Standards Codification (or ASC) 926, Entertainment—Films (or ASC 926) and ASC 605, Revenue Recognition.  We generate our revenue primarily from the exploitation of acquired or produced content rights through multiplatform distribution channels. The content is monetized in DVD format to wholesalers, broadcasters including cable companies and digital platforms like Amazon and Netflix, and exploited through other windows including:  direct-to-consumer, catalogs and subscription streaming channels. Revenue is presented net of sales returns, rebates, unit price adjustments, sales return reserve, sales discounts and market development funds.

Revenues from home video exploitation are recognized net of an allowance for estimated returns, as well as related costs, in the period in which the product is available for sale by our customers (at the point that title and risk of loss transfer to the customer, which is generally upon receipt by the customer and in the case of new releases, after “street date” restrictions lapse).  Rental revenues under revenue sharing arrangements are recognized when we are entitled to receipts and such receipts are determinable.  Revenues from domestic and international broadcast licensing and home video sublicensing, as well as associated costs, are recognized when the programming is available to the licensee and other ASC 605 recognition requirements are met.  Fees received in advance of availability, usually in the case of advances received from international home video sub licensees and for broadcast programming, are deferred until earned and all revenue recognition requirements have been satisfied.  Provisions for sales returns and uncollectible accounts receivable are provided at the time of sale.

Revenues from our catalog sales are recognized net of an allowance for estimated returns once payment has been received from the customer and the item ordered has been shipped.  Revenues from our proprietary, subscription-based, streaming channels are recognized on a straight-line basis over the subscription period once the subscription has been activated.

Allowances for Sales Returns

For each reporting period, we evaluate product sales and accounts receivable to estimate their effect on revenues due to product returns, sales allowances and other credits given, and delinquent accounts.  Our estimates of product sales that will be returned and the amount of receivables that will ultimately be collected require the exercise of judgment and affect reported revenues and net earnings.  In determining the estimate of product sales that will be returned, we analyze historical returns (quantity of returns and time to receive returned product), historical pricing and other credit data, current economic trends, and changes in customer demand and acceptance of our products, including reorder activity.  Based on this information, we reserve a percentage of each dollar of product sales where the customer has the right to return such product and receive a credit.  Actual returns could differ from our estimates and current provisions for sales returns and allowances, resulting in future charges to earnings.  Estimates of future sales returns and other credits are subject to substantial uncertainty.  Factors that could negatively impact actual returns include retailer financial difficulties, the perception of comparatively poor retail performance in one or several retailer locations, limited retail shelf space at various times of the year, inadequate advertising or promotions, retail prices being too high for the perceived quality of the content or other comparable content, the near-term release of similar titles, and poor responses to package designs.  Underestimation of product sales returns and other credits would result in an overstatement of current revenues and lower revenues in future periods.  Conversely, overestimation of product sales returns would result in an understatement of current revenues and higher revenues in future periods.

48

Investments in Content

Investments in content include the unamortized costs of completed films and television programs that were acquired or produced.  Within the carrying balance of investments in content are development and production costs for films and television programs which are acquired or produced.

Acquired Distribution Rights and Produced Content

Royalty and Distribution Fee Advances – Royalty and distribution fee advances represent fixed minimum payments made to program suppliers for exclusive content distribution rights.  A program supplier’s share of exclusive program distribution revenues is retained by us until the share equals the advance(s) paid to the program supplier plus recoupable costs.  Thereafter, any excess is paid to the program supplier.  In the event of an excess, we also record, as cost of sales, an amount equal to the program supplier’s share of the net distribution revenues.

Original Production Costs – For films and television programs produced by RLJE, original production costs include all direct production and financing costs, as well as production overhead.

Unamortized content investments are charged to cost of sales as revenues are earned in the same ratio that current period revenue for a title or group of titles bears to the estimated remaining unrecognized ultimate revenue for that title.

Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release, or for episodic television series a period not to exceed 10 years from the date of delivery of the first episode or, if still in production, five years from the date of delivery of the most recent episode, if later.

Investments in content are stated at the lower of amortized cost or estimated fair value. The valuation of investments in content is reviewed on a title-by-title basis, when an event or change in circumstances indicates that the fair value of a film or television program is less than its unamortized cost. Additional amortization is recorded in the amount by which the unamortized costs exceed the estimated fair value of the film or television program. Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films and television programs may be required as a consequence of changes in management’s future revenue estimates.

Content programs in progress include the accumulated costs of productions, which have not yet been completed, and advances on content not yet received from program suppliers. We begin to amortize these investments once the content has been released.

Production Development Costs

The costs to produce licensed content for domestic and international exploitation include the cost of converting film prints or tapes into the optical disc format.  Depending on the platform for which the content is being exploited, costs may include menu design, authoring, compression, subtitling, closed captioning, service charges related to disc manufacturing, ancillary material production, product packaging design and related services. These costs are capitalized as incurred. A percentage of the capitalized production costs are amortized to expense based upon:  (i) a projected revenue stream resulting from distribution of new and previously released content related to such production costs; and (ii) management’s estimate of the ultimate net realizable value of the production costs.  Estimates of future revenues are reviewed periodically and amortization of production costs is adjusted accordingly.  If estimated future revenues are not sufficient to recover the unamortized balance of production costs, such costs are reduced to their estimated fair value.

Inventories

For each reporting period, we review the value of inventories on hand to estimate the recoverability through future sales.  Values in excess of anticipated future sales are recorded as obsolescence reserve.  Inventories consist primarily of packaged goods for sale, which are stated at the lower-of-average-cost or market, as well as componentry.

49

Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of acquisition costs over the tangible and identifiable intangible assets acquired and liabilities assumed in a business acquisition.  Goodwill is recorded at our reporting units, which are consolidated into our reporting segments.  Goodwill is not amortized but is reviewed for impairment annually or between the annual tests if an event occurs or circumstances change that indicates it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value.  The impairment test follows a two-step approach.  The first step determines if the goodwill is potentially impaired, and the second step measures the amount of the impairment loss, if necessary.  Under the first step, goodwill is considered potentially impaired if there are subjective characteristics that suggest that goodwill is impaired or quantitatively when the fair value of the reporting unit is less than the reporting unit’s carry amount, including goodwill.  Under the second step, the impairment loss is then measured as the excess of recorded goodwill over the fair value of the goodwill, as calculated.  Determining the fair value requires various assumptions and estimates, which include consideration of the future, projected operating results and cash flows. Such projections could be different than actual results. Should actual results be significantly less than estimates, the value of our goodwill could be impaired in future periods.

Other Intangible Assets

Other intangible assets are reported at their estimated fair value when acquired less accumulated amortization.  The majority of our intangible assets were recognized as a result of the Business Combination.  As such, the fair values of our intangibles were recorded in 2012 when applying purchase accounting.

Amortization expense on our other intangible assets is generally computed by applying the straight-line method, or based on estimated forecasted future revenues as stated below, over the estimated useful lives of trade names (15 years), website (three years), supplier contracts (seven years), customer relationships (five years) and leases (two years).  The recorded value of our customer relationships is amortized on an accelerated basis over five years, with approximately 60% being amortized over the first two years (through 2014), 20% during the third year and the balance ratably over the remaining useful life.  The recorded value of our options on future content is amortized based on forecasted future revenues, whereby approximately 50% is being amortized over the first two years, 25% during the third year and the balance in decreasing amounts over the remaining four years.

Additional amortization expense is provided on an accelerated basis when the useful life of an intangible asset is determined to be less than originally expected.  Other intangible assets are reviewed for impairment when an event or circumstance indicates the value is lower than the current carrying value.

Warrant Liability

We have warrants outstanding to purchase 21,041,667 shares of our common stock, which are recorded at fair value on the consolidated balance sheets at December 31, 2014 and 2013.  All of the warrants contain a provision whereby the exercise price will be reduced if RLJE reorganized as a private company.  Because of this provision, all warrants are accounted for as a derivative liability in accordance with ASC 815-40, Contracts in Entity’s Own Equity.  The change in the fair value of the warrants is recorded as a component of other income.

Income Taxes

We account for income taxes pursuant to the provisions of ASC 740, Income Taxes (or ASC 740), whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and the future tax benefits derived from operating loss and tax credit carryforwards.  We provide a valuation allowance on our deferred tax assets when it is more likely than not that such deferred tax assets will not be realized. We have a valuation allowance against 99% of our net deferred tax assets at December 31, 2014.

ASC 740 requires that we recognize in the consolidated financial statements the effect of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position.  The first step is to determine whether or not a tax benefit should be recognized.  A tax benefit will be recognized if the weight of available evidence indicates that the tax position is more likely than not to be sustained upon examination by the relevant tax authorities.  The recognition and measurement of benefits related to our tax positions requires significant judgment as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities.  Differences between actual results and our assumptions, or changes in our assumptions in future periods, are recorded in the period they become known.  For tax liabilities, we recognize accrued interest related to uncertain tax positions as a component of income tax expense, and penalties, if incurred, are recognized as a component of operating expense.

50

For a discussion of each of all our significant accounting policies, including information and analysis of estimates and assumptions involved in their application, see Note 2, Significant Accounting Policies of our consolidated financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

We typically acquire content via separately executed licensing or distribution agreements with content suppliers. These contracts generally require that we make advance payments before the content is available for exploitation.  Advance payments are generally due prior to and upon delivery of the related content.  We do not recognize our payment obligations under our licensing and distribution agreements prior to the content being delivered.  As of December 31, 2014, we had entered into licensing and distribution agreement for which we are obligated to pay $7.1 million once the related content has been delivered.

CONTRACTUAL COMMITMENTS

A table with our contractual commitments is not required for smaller reporting companies within our MD&A.  For information regarding our contractual commitments refer to Note 10, Debt and Note 21, Commitment and Contingencies of our consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 7A. Quantitative and Qualitative Disclosures about Market Risk is not required for smaller reporting companies.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	Page
Reports of Independent Registered Public Accounting Firms	53
Consolidated Balance Sheets as of December 31, 2014 and 2013	55
Consolidated Statements of Operations for the years ended December 31, 2014 and 2013	56
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014 and 2013	57
Consolidated Statements of Equity for the years ended December 31, 2014 and 2013	58
Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013	59
Notes to Consolidated Financial Statements	60

52

RLJ ENTERTAINMENT, INC. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

RLJ Entertainment, Inc.:

We have audited the accompanying consolidated balance sheet of RLJ Entertainment, Inc. and subsidiaries as of December 31, 2014, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for the year ended December 31, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RLJ Entertainment, Inc. and subsidiaries as of December 31, 2014, and the results of their operations and their cash flows for the year ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.

	/s/ KPMG LLP
McLean, Virginia
May 8, 2015

53

RLJ ENTERTAINMENT, INC. AND SUBSIDIARIES

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

RLJ Entertainment, Inc.

Silver Spring, Maryland

We have audited the accompanying consolidated balance sheets of RLJ Entertainment, Inc. as of December 31, 2013 and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for the year ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RLJ Entertainment, Inc. at December 31, 2013, and the results of its operations and its cash flows for the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

Los Angeles, California

March 19, 2014

54

RLJ ENTERTAINMENT, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31, 2014 and 2013

(In thousands, except share data)	December 31,
	2014			2013
ASSETS
Cash	$	6,662		$	7,674
Accounts receivable, net		17,389			20,324
Inventories		13,029			15,589
Investments in content, net		67,525			81,641
Prepaid expenses and other assets		2,633			2,527
Property, equipment and improvements, net		2,372			1,759
Equity investment in affiliates		22,281			25,233
Other intangible assets		15,272			19,651
Goodwill		44,891			45,872
Total assets	$	192,054		$	220,270
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities	$	24,582		$	32,331
Accrued royalties and distribution fees		42,493			42,115
Deferred revenue		5,006			4,402
Debt, net of discount		80,913			76,264
Production loan		—			1,294
Deferred tax liability		2,002			1,814
Stock warrant liability		601			4,123
Total liabilities		155,597			162,343
Equity:
Common stock, $0.001 par value, 250 million shares authorized, 13,724,756 shares issued and 13,335,258 shares outstanding at December 31, 2014 and 13,700,862  shares issued and outstanding at December 31, 2013		14			13
Additional paid-in capital		87,706			86,938
Accumulated deficit		(50,534	)		(29,334	)
Accumulated other comprehensive income (loss)		(729	)		310
Treasury shares, at cost, 389,498 shares at December 31, 2014 and zero at December 31, 2013		—			—
Total equity		36,457			57,927
Total liabilities and equity	$	192,054		$	220,270

See accompanying notes to consolidated financial statements.

55

RLJ ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 2014 and 2013

	Years Ended December 31,
(In thousands, except per share data)	2014			2013
Revenues	$	137,689		$	164,830
Cost of sales		101,454			132,631
Gross profit		36,235			32,199
Selling expenses		24,510			26,830
General and administrative expenses		19,681			22,810
Depreciation and amortization		5,694			6,174
Goodwill impairment		981			—
Total operating expenses		50,866			55,814
LOSS FROM OPERATIONS		(14,631	)		(23,615	)
Equity earnings of affiliates		2,580			3,296
Interest expense, net		(9,459	)		(8,279	)
Change in fair value of stock warrants		3,522			201
Loss on extinguishment of debt		(1,457	)		—
Other expense		(1,356	)		(479	)
LOSS BEFORE PROVISION FOR INCOME TAXES		(20,801	)		(28,876	)
Provision for income taxes		(399	)		(2,201	)
NET LOSS	$	(21,200	)	$	(31,077	)
Net loss per common share:
Basic and diluted	$	(1.69	)	$	(2.50	)
Weighted average shares outstanding:
Basic and diluted		12,532			12,447

See accompanying notes to consolidated financial statements.

56

RLJ ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Years ended December 31, 2014 and 2013

	Years Ended December 31,
(In thousands)	2014			2013
Net loss	$	(21,200	)	$	(31,077	)
Other comprehensive income (loss):
Foreign currency translation gain (loss)		(1,039	)		155
Total comprehensive loss	$	(22,239	)	$	(30,922	)

See accompanying notes to consolidated financial statements.

57

RLJ ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF EQUITY

Years ended December 31, 2014 and 2013

	Common Stock														Treasury Stock
(In thousands)	Shares			Par Value		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Shares			At Cost		Total Equity
Balance at January 1, 2013		13,378		$	13	$	86,133		$	1,743		$	155			—		$	—	$	88,044
Issuance of restricted common stock for services		323			—		—			—			—			—			—		—
Stock-based compensation		—			—		805			—			—			—			—		805
Foreign currency translation		—			—		—			—			155			—			—		155
Net loss		—			—		—			(31,077	)		—			—			—		(31,077	)
Balance at December 31, 2013		13,701			13		86,938			(29,334	)		310			—			—		57,927
Issuance of restricted common stock for services		190			1		(1	)		—			—			(166	)		—		—
Forfeiture of restricted common stock		(97	)		—		—			—			—			97			—		—
Forfeiture of founder shares		(459	)		—		—			—			—			459			—		—
Stock-based compensation		—			—		769			—			—			—			—		769
Foreign currency translation		—			—		—			—			(1,039	)		—			—		(1,039	)
Net loss		—			—		—			(21,200	)		—			—			—		(21,200	)
Balance at December 31, 2014		13,335		$	14	$	87,706		$	(50,534	)	$	(729	)		390		$	—	$	36,457

See accompanying notes to consolidated financial statements.

58

RLJ ENTERTAINMENT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2014 and 2013

(In thousands)	Years Ended December 31,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(21,200	)	$	(31,077	)
Adjustments to reconcile net loss to net cash:
Equity earnings in affiliates		(2,580	)		(3,296	)
Amortization of content, including impairments		58,807			75,345
Depreciation and amortization		5,694			6,174
Goodwill impairment		981			—
Deferred tax provision		188			1,464
Foreign currency exchange loss		1,149			484
Fair value adjustment of stock warrant liability		(3,522	)		(201	)
Non-cash interest expense		2,314			1,526
Loss on extinguishment of debt		1,457			—
Stock-based compensation expense		769			805
Changes in assets and liabilities:
Accounts receivable, net		2,661			4,854
Inventories		2,476			7,462
Investments in content, net		(44,611	)		(50,239	)
Prepaid expenses and other assets		833			(258	)
Accounts payable and accrued liabilities		(7,768	)		(6,526	)
Deferred revenue		737			33
Net cash provided by (used in) operating activities		(1,615	)		6,550
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(1,655	)		(1,005	)
Dividends received from affiliate		4,040			4,005
Net cash provided by investing activities		2,385			3,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility		—			10,398
Repayments of borrowings under revolving credit facility		(14,949	)		(3,000	)
Proceeds from production loan		9,865			1,414
Repayment of production loan		(11,155	)		—
Proceeds from senior debt, net of discount		65,110			—
Deferred financing costs, senior debt		(1,309	)		—
Repayment of senior debt		(48,893	)		(14,756	)
Cash paid to extinguish debt		(30	)		—
Net cash used in financing activities		(1,361	)		(5,944	)
Effect of exchange rate changes on cash		(421	)		(671	)
NET INCREASE (DECREASE) IN CASH:		(1,012	)		2,935
Cash at beginning of year		7,674			4,739
Cash at end of year	$	6,662		$	7,674

See accompanying notes to consolidated financial statements.

59

NOTE 1. DESCRIPTION OF BUSINESS

Description of Business and Basis of Presentation

RLJ Entertainment, Inc. (or RLJE) is a global entertainment company with a direct presence in North America, the United Kingdom (or U.K.) and Australia and sublicense and distribution relationships covering Europe, Asia and Latin America.  RLJE was incorporated in Nevada in April 2012. On October 3, 2012, we completed the business combination of RLJE, Image Entertainment, Inc. (or Image) and Acorn Media Group, Inc. (or Acorn Media), which is referred to herein as the “Business Combination.”  Acorn Media includes its subsidiaries RLJE International Ltd (or RLJE U.K.), RLJ Entertainment Australia Pty Ltd. (or RLJE Australia) and RLJ Entertainment Ltd (or RLJE Ltd.).  In February 2012, Acorn Media acquired a 64% ownership of Agatha Christie Limited (or ACL).  References to Image include its wholly-owned subsidiary Image/Madacy Home Entertainment, LLC.  “We,” “our” or “us” refers to RLJE and its subsidiaries unless otherwise noted.  Our principal executive offices are located in Silver Spring, Maryland, with additional locations in Woodland Hills, California, and Stillwater, Minnesota, and international locations in London, England and Sydney, Australia.

We acquire content rights in various categories including, British mysteries and dramas, urban programming, and full-length independent motion pictures.  We acquire this content in two ways:

§ Through long-term exclusive licensing agreements where we secure multiple rights to third-party programs, and;

§ Through development, production, and ownership of original drama television programming through our wholly-owned subsidiary, RLJE Ltd., and our majority-owned subsidiary, ACL, as well as fitness programs through our Acacia brand.

We exploit our products through a multi-channel strategy encompassing (1) the licensing of original drama and mystery content managed and developed through our wholly-owned subsidiary, RLJE Ltd., and our majority-owned subsidiary, ACL, (IP Licensing segment) as well as our fitness offerings; (2) wholesale exploitation through partners covering broadcast/cable, digital, online, and brick and mortar outlets (Wholesale segment); and (3) direct relations with consumers via proprietary e-commerce, catalog, and subscription-based video on demand (or SVOD) channels (Direct-to-Consumer segment).

Our wholesale partners are broadcasters, digital outlets and major retailers in the United States of America (or U.S.), Canada, U.K. and Australia, including, among others, Amazon, Netflix, Walmart, Target, Costco, Barnes & Noble, iTunes, BET, Showtime, PBS, DirecTV, and Hulu.

Our Direct-to-Consumer segment includes the sale of video content and complementary merchandise directly to consumers through proprietary e-commerce websites, and catalogs and the continued roll-out of our proprietary subscription-based SVOD channels, such as Acorn TV, Acacia TV and UMC (Urban Movie Channel), the latter of which was launched in November 2014.

RLJE’s management views the operations of the Company based on these three distinctive reporting segments: (1) Intellectual Property (or IP) Licensing; (2) Wholesale; and (3) Direct-to-Consumer.  Operations and net assets that are not associated with any of these stated segments are reported as “Corporate” when disclosing and discussing segment information.  The IP Licensing segment includes intellectual property rights that we own or create and then sublicense for exploitation worldwide.  Our Wholesale and Direct-to-Consumer segments consist of the acquisition, content enhancement and worldwide exploitation of exclusive content in various formats, including broadcast (including cable and satellite), DVD, Blu-ray, digital, video-on-demand (or VOD), SVOD, downloading and sublicensing.  The Wholesale segment exploits content through third-party vendors, while the Direct-to-Consumer segment exploits the same content and complementary merchandise directly to consumers through our proprietary e-commerce websites, mail-order catalogs and digitally streaming channels.

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Basis of Presentation

The accompanying audited consolidated financial statements and related footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America (or U.S. GAAP) and with the Securities and Exchange Commission’s (or SEC) instructions for the Form 10-K.  The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts within our consolidated financial statements.  Although we believe that these estimates to be reasonably accurate, actual amounts may differ.

Reclassifications and Adjustments

Certain amounts reported previously in our consolidated financial statements have been reclassified to be comparable with the classifications used for our 2014 consolidated financial statements.  We reclassified certain expenses that had been reported in previous periods within our Wholesale segment to Corporate.  Also, in 2014, we began reporting the change in the fair value of our stock warrants as a separate line item within our statement of operations.

During the fourth quarter of 2014, we reviewed our estimates for accruals of price adjustments that we provide to our customers.  Specifically, we analyzed the cost of sales impact of these accruals, which we previously did not consider or recognize for financial statement reporting purposes at the time of accrual.  While the cost of sales impact is immaterial, we are adjusting our 2013 consolidated financial statements (See Note 9, Goodwill and Other Intangible Assets).

Earnings Per Share Presentation

During the first quarter of 2014, we changed our presentation of our earnings per share (or EPS) by excluding our restricted common stock from the calculation, and as a result, we removed our two-class method presentation of EPS per Accounting Standards Codification (or ASC) 260, Earnings Per Share.  This change was determined because our restricted common stock is not obligated to fund our reported net losses.  We also removed 898,438 founder shares from unrestricted common stock for the year ended December 31, 2013, as these shares could be forfeited in future periods (see Note 12, Equity).  For the year ended December 31, 2013, the unrestricted weighted average shares outstanding was reduced by 898,438 founder shares and the loss per share for unrestricted common stock increased to $(2.50) per share from $(2.30) per share.  We have assessed this change in presentation for materiality and determined this change is not material to our consolidated financial statements.

Principles of Consolidation

The operations of ACL are entirely managed by RLJE, subject to oversight by ACL’s Board of Directors. The investment in ACL is accounted for using the equity method of accounting given the voting control of the Board of Directors by the minority shareholder. We have included our share of ACL’s operating results, using the equity method of accounting, in our consolidated financial statements.

Our consolidated financial statements include the accounts of all majority-owned subsidiary companies, except for ACL. Investment in ACL is carried as a separate asset on the Consolidated Balance Sheet at cost adjusted for our share of the equity in undistributed earnings. Except for dividends and changes in ownership interest, changes in equity in undistributed earnings of ACL are included in “Other income (expense)” in the Consolidated Statements of Operations. All intercompany transactions and balances have been eliminated.

Liquidity

For the years ended December 31, 2014 and 2013, we recognized a net loss of $21.2 million and $31.1 million, respectively, and we used $1.6 million of cash in operating activities during 2014.   At December 31, 2014, our cash balance was $6.7 million.  At December 31, 2014, we had $80.9 million of term debt outstanding (see Note 10, Debt).  As of March 31, 2015, our cash balance had declined and we were not in compliance with our minimum cash balance requirement of $3.5 million within our Credit Agreement.  This default was waived by our lenders on April 15, 2015 (See Note 23, Subsequent Events).  We continue to experience liquidity constraints and we are dependent upon growth in sales and margins to meet our liquidity needs and our debt covenants for the next twelve months.  On April 15, 2015, we amended our Credit Facility to increase the likelihood that we will meet our future covenant requirements and amended our subordinated notes to reduce the applicable interest rate for two years.  We also improved our liquidity by selling on April 15, 2015 15,000 shares of Bridge Preferred Stock for $15.0 million.  The proceeds received were used to make an accelerated principal payment of $10.0 million under our Credit Agreement, pay fees and expense incurred of approximately $1.0 million, and approximately $4.0 million is available for working capital needs.  We are also in discussions with other potential investors to sell additional shares of preferred stock (See Note 23, Subsequent Events).  There can be no assurances that we will be successful in raising additional capital, realize revenue and margin growth or meeting our future covenant requirements within our Credit Agreement.  We believe that our current financial position combined with our forecasted operational results will be sufficient to meet our commitments.

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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements.  The significant areas requiring the use of management estimates are related to provisions for lower-of-cost or market inventory write-downs, accounts receivable allowances and provision for doubtful accounts and sales returns reserves, valuation of deferred taxes, valuation of warrants, goodwill impairments, and ultimate projected revenues of our film library, which impact amortization of investments in content and related impairment assessments.  Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ materially from those estimates.

Revenues and Receivables

Revenue Recognition

Revenue is recognized upon meeting the recognition requirements of the Financial Accounting Standards Board Accounting Standards Codification (or ASC) 926, Entertainment—Films (or ASC 926) and ASC 605, Revenue Recognition.  We generate our revenue primarily from the exploitation of acquired or produced content rights through various distribution channels.  The content is monetized in DVD format to wholesale, licensed to broadcasters including cable companies and digital platforms like Amazon and Netflix, and exploited through other windows including:  video-on-demand, direct-to-consumer, catalogs and subscription streaming channels.  Revenue is presented net of sales returns, rebates, unit price adjustments, sales return reserve, sales discounts and market development fund reserve.

Revenues from home video exploitation are recognized net of an allowance for estimated returns, as well as related costs, in the period in which the product is available for sale by our customers (at the point that title and risk of loss transfer to the customer, which is generally upon receipt by the customer and in the case of new releases, after “street date” restrictions lapse).  Rental revenues under revenue sharing arrangements are recognized when we are entitled to receipts and such receipts are determinable.  Revenues from domestic and international broadcast licensing and home video sublicensing, as well as associated costs, are recognized when the programming is available to the licensee and all other recognition requirements are met such as the broadcaster is free to air the programming.  Fees received in advance of availability, usually in the case of advances received from international home video sub-licensees and for broadcast programming, are deferred until earned and all revenue recognition requirements have been satisfied.  Provisions for sales returns and uncollectible accounts receivable are provided at the time of sale.

Revenues from our catalog sales are recognized net of an allowance for estimated returns once payment has been received from the customer and the item ordered has been shipped.  Revenues from our proprietary, subscription-based, streaming channels are recognized on a straight-line basis over the subscription period once the subscription has been activated.

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Allowances for Sales Returns

For each reporting period, we evaluate product sales and accounts receivable to estimate their effect on revenues due to product returns, sales allowances and other credits given, and delinquent accounts.  Our estimates of product sales that will be returned and the amount of receivables that will ultimately be collected require the exercise of judgment and affect reported revenues and net earnings.  In determining the estimate of product sales that will be returned, we analyze historical returns (quantity of returns and time to receive returned product), historical pricing and other credit data, current economic trends, and changes in customer demand and acceptance of our products, including reorder activity.  Based on this information, we reserve a percentage of each dollar of product sales where the customer has the right to return such product and receive a credit.  Actual returns could differ from our estimates and current provisions for sales returns and allowances, resulting in future charges to earnings.  Estimates of future sales returns and other credits are subject to substantial uncertainty.  Factors that could negatively impact actual returns include retailer financial difficulties, the perception of comparatively poor retail performance in one or several retailer locations, limited retail shelf space at various times of the year, inadequate advertising or promotions, retail prices being too high for the perceived quality of the content or other comparable content, the near-term release of similar titles, and poor responses to package designs.  Underestimation of product sales returns and other credits would result in an overstatement of current revenues and lower revenues in future periods.  Conversely, overestimation of product sales returns would result in an understatement of current revenues and higher revenues in future periods.

Allowances Received From Vendors

In accordance with ASC 605-50, Revenue Recognition—Customer Payments and Incentives, we classify consideration received as a reduction in cost of sales in the accompanying statements of operations unless the consideration represents reimbursement of a specific, identifiable cost incurred by us in selling the vendor’s product.

Shipping Revenues and Expenses

In accordance with ASC 605-45, Revenue Recognition—Principal Agent Considerations, we classify amounts billed to customers for shipping fees as revenues, and classify costs related to shipping as cost of sales in the accompanying consolidated statements of operations.

Market Development Funds

In accordance with ASC 605-50, Revenue Recognition—Customer Payment and Incentives, market development funds, including funds for specific product positioning, taken as a deduction from payment for purchases by customers are classified as a reduction to revenues.

Investments in Content

Investments in content include the unamortized costs of completed films and television programs that were acquired or produced.  Within the carrying balance of investments in content are development and production costs for films and television programs which are acquired or produced.

Acquired Distribution Rights and Produced Content

Royalty and Distribution Fee Advances – Royalty and distribution fee advances represent fixed minimum payments made to program suppliers for exclusive content distribution rights.  A program supplier’s share of exclusive program distribution revenues is retained by us until the share equals the advance(s) paid to the program supplier plus recoupable costs.  Thereafter, any excess is paid to the program supplier.  In the event of an excess, we also record, as cost of sales, an amount equal to the program supplier’s share of the net distribution revenues.

Original Production Costs – For films and television programs produced by RLJE, original production costs include all direct production and financing costs, as well as production overhead.

Unamortized content investments are charged to cost of sales as revenues are earned in the same ratio that current period revenue for a title or group of titles bears to the estimated remaining unrecognized ultimate revenue for that title.

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Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release, or for episodic television series a period not to exceed 10 years from the date of delivery of the first episode or, if still in production, five years from the date of delivery of the most recent episode, if later.

Investments in content are stated at the lower of amortized cost or estimated fair value. The valuation of investments in content is reviewed on a title-by-title basis, when an event or change in circumstances indicates that the fair value of a film or television program is less than its unamortized cost. Additional amortization is recorded in the amount by which the unamortized costs exceed the estimated fair value of the film or television program.  Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films and television programs may be required as a consequence of changes in management’s future revenue estimates.

Content programs in progress include the accumulated costs of productions, which have not yet been completed, and advances on content not yet received from program suppliers. We begin to amortize these investments once the content has been released.

Production Development Costs

The costs to produce licensed content for domestic and international exploitation include the cost of converting film prints or tapes into the optical disc format.  Depending on the platform for which the content is being exploited, costs may include menu design, authoring, compression, subtitling, closed captioning, service charges related to disc manufacturing, ancillary material production, product packaging design and related services.  These costs are capitalized as incurred. A percentage of the capitalized production costs are amortized to expense based upon:  (i) a projected revenue stream resulting from distribution of new and previously released content related to such production costs; and (ii) management’s estimate of the ultimate net realizable value of the production costs.  Estimates of future revenues are reviewed periodically and amortization of production costs is adjusted accordingly.  If estimated future revenues are not sufficient to recover the unamortized balance of production costs, such costs are reduced to their estimated fair value.

Inventories

For each reporting period, we review the value of inventories on hand to estimate the recoverability through future sales.  Values in excess of anticipated future sales are recorded as obsolescence reserve.  Inventories consist primarily of packaged goods for sale, which are stated at the lower-of-average-cost or market, as well as componentry.

Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of acquisition costs over the tangible and identifiable intangible assets acquired and liabilities assumed in a business acquisition.  Goodwill is recorded at our reporting units, which are consolidated into our reporting segments.  Goodwill is not amortized but is reviewed for impairment annually on October 1^st of each year or between the annual tests if an event occurs or circumstances change that indicates it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value.  The impairment test follows a two-step approach.  The first step determines if the goodwill is potentially impaired, and the second step measures the amount of the impairment loss, if necessary.  Under the first step, goodwill is considered potentially impaired if there are subjective characteristics that suggest that goodwill is impaired or quantitatively when the fair value of the reporting unit is less than the reporting unit’s carry amount, including goodwill.  Under the second step, the impairment loss is then measured as the excess of recorded goodwill over the fair value of the goodwill, as calculated.  Determining the fair value requires various assumptions and estimates, which include consideration of the future, projected operating results and cash flows. Such projections could be different than actual results. Should actual results be significantly less than estimates, the value of our goodwill could be impaired in future periods.

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Other Intangible Assets

Other intangible assets are reported at their estimated fair value when acquired less accumulated amortization.  The majority of our intangible assets were recognized as a result of the Business Combination.  As such, the fair values of our intangibles were recorded in 2012 when applying purchase accounting.  Additions since the 2012 Business Combination are limited to website expenditures. Similar to how we account for internal-use software development, costs that are incurred to develop and implement our websites are capitalized in accordance with ASC 350-50, Website Development Costs.  Website operating costs are expensed as incurred.  Costs incurred for upgrades and enhancements that provide additional functionality are capitalized.

Amortization expense on our other intangible assets is generally computed by applying the straight-line method, or based on estimated forecasted future revenues as stated below, over the estimated useful lives of trade names (15 years), website (3 years), supplier contracts (7 years), customer relationships (five years), options on future content (7 years) and leases (2 years).  The recorded value of our customer relationships is amortized on an accelerated basis over five years, with approximately 60% being amortized over the first two years (through 2014), 20% during the third year and the balance ratably over the remaining useful life.  The recorded value of our options on future content is amortized based on forecasted future revenues, whereby approximately 50% is being amortized over the first two years (through 2014), 25% during the third year and the balance in decreasing amounts over the remaining four years.

Additional amortization expense is provided on an accelerated basis when the useful life of an intangible asset is determined to be less than originally expected.  Other intangible assets are reviewed for impairment when an event or circumstance indicates the fair value is lower than the current carrying value.

For all periods presented, we did not recognize any impairment on our other intangible assets.

Warrant Liability

We have warrants outstanding to purchase 21,041,667 shares of our common stock, which are recorded at fair value on the consolidated balance sheets (see Note 11, Stock Warrants).  All of the warrants contain a provision whereby the exercise price will be reduced if RLJE reorganized as a private company.  Because of this provision, all warrants are accounted for as a derivative liability in accordance with ASC 815-40, Contracts in Entity’s Own Equity.  The changes in the fair value of the warrants are recorded as a component of other income (expense).

Income Taxes

We account for income taxes pursuant to the provisions of ASC 740, Income Taxes (or ASC 740), whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and the future tax benefits derived from operating loss and tax credit carryforwards.  We provide a valuation allowance on our deferred tax assets when it is more likely than not that such deferred tax assets will not be realized. We have a valuation allowance against 99% and 100% of our net deferred tax assets at December 31, 2014 and 2013, respectively.

ASC 740 requires that we recognize in the consolidated financial statements the effect of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position.  The first step is to determine whether or not a tax benefit should be recognized.  A tax benefit will be recognized if the weight of available evidence indicates that the tax position is more likely than not to be sustained upon examination by the relevant tax authorities.  The recognition and measurement of benefits related to our tax positions requires significant judgment as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities.  Differences between actual results and our assumptions, or changes in our assumptions in future periods, are recorded in the period they become known.  For tax liabilities, we recognize accrued interest related to uncertain tax positions as a component of income tax expense, and penalties, if incurred, are recognized as a component of operating expense.

Our foreign subsidiaries are subject to income taxes in their respective countries, as well as U.S. Federal and state income taxes. The income tax payments they make outside the U.S. give rise to foreign tax credits that we may use to offset taxable income in the United States.

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Foreign Currency Translation

The consolidated financial statements are presented in our company’s functional and reporting currency, which is the U.S. dollar. For the foreign subsidiaries whose functional currency is other than the U.S. dollar (the British Pound Sterling or GBP for RLJE U.K. and RLJE Ltd.; and Australian dollar for RLJE Australia), balance sheet accounts, other than equity accounts, are translated into U.S. dollars at exchange rates in effect at the end of the period and income statement accounts are translated at average monthly exchange rates. Equity accounts are translated at historical rates. Translation gains and losses are included as a separate component of equity. Gains and losses from foreign currency denominated transactions are included in the statement of operations as a component of other income (expense).

Fair Value of Financial Instruments

The carrying amount of our financial instruments, which principally include cash, trade receivables, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. The carrying amount of our debt and notes payable approximates fair value as the debt bears market interest rates of interest.  Our estimate of fair value is based on the recent refinancing of our notes.  We consider this assessment of fair value to be a Level 3 assessment.

ASC 820, Fair Value Measurements and Disclosures (or ASC 820), defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair-value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our recurring fair value measurements of financial assets and liabilities and our nonrecurring fair value measurements of assets and liabilities are disclosed in Note 14, Fair Value Measurements.

Concentrations of Credit Risk

Financial instruments which potentially subject RLJE to concentrations of credit risk consist primarily of deposit accounts and trade accounts receivable. RLJE maintains bank accounts at financial institutions, which at times may exceed amounts insured by the Federal Deposit Insurance Corporation (or FDIC) and Securities Investor Protection Corporation (or SIPC). We place our cash with several financial institutions which are reputable and therefore bear minimal credit risk. RLJE has never experienced any losses related to these balances.

With respect to trade receivables, we perform ongoing credit evaluations of our customers’ financial conditions and limit the amount of credit extended when deemed necessary but generally require no collateral.

Major Customers and Distribution Facilitators

We have a high concentration of net revenues from relatively few customers, the loss of which may adversely affect our liquidity, business, results of operations, and financial condition.  During 2014, our net revenues from Amazon accounted for 19.0% of our net revenues.  Our top five customers accounted for approximately 46.2% of our net revenues for the same period.  During 2013, Amazon and Entertainment One Films Canada accounted for approximately 13.6% and 10.3%, respectively, of our net revenues.  Our top five customers accounted for approximately 42.1% of our net revenues for 2013.

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We may be unable to maintain favorable relationships with our retailers and distribution facilitators such as, Sony Pictures Home Entertainment (or SPHE) and Sony DADC UK Limited.  Further, our retailers and distribution facilitators may be adversely affected by economic conditions.  If we lose any of our top customers, or if any of these customers reduces or cancels a significant order, it could have a material adverse effect on our liquidity, business, results of operations, and financial condition.

Our high concentration of sales to relatively few customers (and use of a third-party to manage collection of substantially all packaged goods receivables) may result in significant uncollectible accounts receivable exposure, which may adversely affect our liquidity, business, results of operations, and financial condition.  As of December 31, 2014, SPHE and Netflix accounted for approximately 44.0% and 21.4%, respectively, of our gross accounts receivable.  At December 31, 2013, SPHE and Netflix accounted for approximately 43.8% and 17.3%, respectively, or our gross accounts receivable.

Property, Equipment and Improvements

Property, equipment and improvements are stated at cost less accumulated depreciation and amortization.  Major renewals and improvements are capitalized; minor replacements, maintenance and repairs are expensed as incurred.  Internal-use software development costs are capitalized if the costs were incurred while in the application development stage, or if the costs were for upgrades and enhancements that provide additional functionality.  Training and data-conversion costs are expensed as incurred.  We cease capitalizing software costs and start depreciating the software once the project is substantially complete and ready for its intended use.

Depreciation and amortization are computed by applying the straight-line method over the estimated useful lives of the furniture, fixtures and equipment (3-7 years), and software (3 years).  Leasehold improvements are amortized over the shorter of the useful life (10 years) of the improvement or the life of the related leases.

Impairment of Long-Lived Assets

We review long-lived and specific, definite-lived, identifiable intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  An impairment loss of the excess of the carrying value over fair value would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount.  We have no intangible assets with indefinite useful lives.

Leases

We lease all of the office space utilized for our operations.  All of our leases are operating leases in nature.  A majority of our leases have fixed incremental increases over the lease terms, which are recognized on a straight-line basis over the term of the lease.

Equity Method Investments

We use the equity method of accounting for investments in companies in which we do not have voting control but where we do have the ability to exert significant influence over operating decisions of the companies.  Our equity method investments are periodically reviewed to determine whether there has been a loss in value that is other than a temporary decline.

Debt Discounts

The difference between the principal amount of our debt and the amount recorded as the liability represents a debt discount. The carrying amount of the liability is accreted up to the principal amount through the amortization of the discount, using the effective interest method, to interest expense over the expected term of the debt.

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Advertising Costs

Our advertising expense consists of expenditures related to advertising in trade and consumer publications, product brochures and catalogs, booklets for sales promotion, radio advertising and other promotional costs.  In accordance with ASC 720-35, Other Expenses—Advertising Costs, and ASC 340-20, Other Assets and Deferred Costs—Capitalized Advertising Costs, we expense advertising costs in the period in which the advertisement first takes place.  Product brochures and catalogs and various other promotional costs are capitalized and amortized over the expected period of future benefit, but generally not exceeding six months.  Advertising and promotion expense are included as a component of selling expenses.  For the years ended December 31, 2014 and 2013, advertising expense was $3.3 million and $3.4 million, respectively.

Stock Options and Restricted Stock Awards

We expense our stock-based awards in accordance with ASC 718, Compensation—Stock Compensation (or ASC 718).  ASC 718 establishes standards with respect to the accounting for transactions in which an entity exchanges its equity instruments for goods or services, or incurs liabilities in exchange for goods or services, that are based on the fair value of the entity’s equity instruments, focusing primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  ASC 718 requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions) and recognize the cost over the period during which an employee is required to provide service in exchange for the award.  Expense recognized is reduced by estimated forfeitures.

Earnings/Loss per Share

Basic earnings/loss per share is computed using the weighted-average number of common shares outstanding during the period.  Diluted earnings per share are computed using the combination of dilutive common share equivalents and the weighted-average shares outstanding during the period.  For the periods reporting a net loss, diluted loss per share is equivalent to basic loss per share, as inclusion of common share equivalents would be anti-dilutive.

Recently Issued Accounting Standards

On May 28, 2014, the Financial Accounting Standards Board issued accounting standard update (or ASU) No. 2014-09, Revenue from Contracts with Customers (or ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for RLJE on January 1, 2017. Early application is not permitted. The standard permits the use of one of three transition methods. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We are also assessing the transition methods available to implement this new accounting standard.  This update could impact the timing and amounts of revenue recognized within our consolidated financial statements.

On August 27, 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (or ASU 2014-09), which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.  This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.  Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures.We will adopt this ASU beginning with annual period ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016.  Upon adoption, we will begin evaluating going concern under this guidance.

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NOTE 3. SEGMENT INFORMATION

In accordance with the requirements of the ASC 280 “Segment Reporting,” selected financial information regarding our reportable business segments, IP Licensing, Wholesale, and Direct-to-Consumer, is presented below.  Our reportable segments are determined based on the distinct nature of their operations, and each segment is a strategic business unit that is managed separately and either exploits our content over a different customer base or acquires content differently.  Our IP Licensing segment includes intellectual property (or content) owned or created by us, other than certain fitness related content, that is licensed for exploitation worldwide. The IP Licensing segment includes our investment in ACL. Our Wholesale segment consists of the acquisition, content enhancement and worldwide exploitation of exclusive content in various formats, including DVD, Blu-ray, digital, broadcast (including cable and satellite), VOD, streaming video, downloading and sublicensing. Our Direct-to-Consumer segment consists of our mail-order catalog and e-commerce businesses and our proprietary digital streaming channels.

Management currently evaluates segment performance based primarily on revenue, and operating income (loss), including earnings from ACL. Operating costs and expenses allocated below to Corporate include only those expenses incurred by us at the parent corporate level, which are not allocated to our reporting segments, and include costs associated with RLJE’s corporate functions such as finance and accounting, human resources, legal and information technology departments.  Interest expense, change in the fair value of stock warrants, loss on extinguishment of debt, other income (expense) and benefit (provision) for income tax are evaluated by management on a consolidated basis and are not allocated to our reportable segments.

The following tables summarize the segment contribution for the years ended December 31, 2014 and 2013:

(In thousands)	Year Ended December 31, 2014
	IP Licensing			Wholesale			Direct-to-Consumer			Corporate			Total
Revenue	$	8,752		$	91,379		$	37,558		$	—		$	137,689
Operating costs and expenses		(6,662	)		(85,595	)		(41,413	)		(11,975	)		(145,645	)
Depreciation and amortization		(115	)		(1,684	)		(3,415	)		(480	)		(5,694	)
Goodwill impairment		—			—			(981	)		—			(981	)
Share in ACL earnings		2,580			—			—			—			2,580
Segment contribution	$	4,555		$	4,100		$	(8,251	)	$	(12,455	)	$	(12,051	)

(In thousands)	Year Ended December 31, 2013
	IP Licensing			Wholesale			Direct-to-Consumer			Corporate			Total
Revenue	$	8,019		$	115,397		$	41,414		$	—		$	164,830
Operating costs and expenses		(7,967	)		(118,455	)		(44,762	)		(11,087	)		(182,271	)
Depreciation and amortization		(89	)		(3,115	)		(2,931	)		(39	)		(6,174	)
Share in ACL earnings		3,296			—			—			—			3,296
Segment contribution	$	3,259		$	(6,173	)	$	(6,279	)	$	(11,126	)	$	(20,319	)

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Operating costs and expenses exclude costs related to depreciation and amortization, as well as goodwill impairments, which are separately presented in the tables above.  Included in our Wholesale segment contribution for the year ended December 31, 2014 is a loss of $3.1 million incurred during the sell-off period under a terminated feature film content output deal that was recognized in the first quarter of 2014.

During the year ended December 31, 2013, we recognized additional operating costs and expenses of approximately $11.5 million, which was primarily recognized within our Wholesale segment as follows:  $4.6 million when management entered into an early termination of a feature film content output deal, increased reserves for inventory and content impairments in the aggregate of approximately $3.4 million, primarily attributable to costs associated with transitioning of the Image/Madacy product line, increased integration costs from a distributor when we combined our Image and Acorn operations of $1.1 million, and $2.4 million associated with entering into certain severance agreements.

A reconciliation of total segment contribution to income (loss) before provision for income taxes is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Total segment loss	$	(12,051	)	$	(20,319	)
Interest expense, net		(9,459	)		(8,279	)
Change in fair value of stock warrants		3,522			201
Loss on extinguishment of debt		(1,457	)		—
Other expense		(1,356	)		(479	)
Loss before provision for income taxes	$	(20,801	)	$	(28,876	)

Total revenue by geographical location is as follows:

(In thousands)	Years Ended December 31,
	2014		2013
United States	$	112,325	$	138,964
United Kingdom		23,501		24,103
Other		1,863		1,763
Net Revenues	$	137,689	$	164,830

Revenues are attributed to geographical locations based on where our customers reside.

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Total assets for each segment primarily include accounts receivable, inventory, and investments in content. The Corporate segment primarily includes assets not fully allocated to a segment including consolidated cash accounts, certain prepaid assets and fixed assets used across all segments.

Total assets by segment are as follows:

(In thousands)	December 31,
	2014		2013
IP Licensing	$	30,197	$	36,127
Wholesale		140,935		160,968
Direct-to-Consumer		12,049		15,964
Corporate		8,873		7,211
	$	192,054	$	220,270

During the year ended December 31. 2014, we had capital expenditures of $2.0 million, which includes $300,000 that was accrued for in accounts payable.  The capital expenditures by segment during 2014 were $437,000, $716,000, $437,000 and $365,000 for the IP Licensing, Wholesale, Direct-to-Consumer and Corporate segments, respectively.

Long-lived assets by geographical location are as follows:

(In thousands)	December 31,
	2014		2013
United States	$	111,445	$	127,260
United Kingdom		39,400		45,310
Other		1,496		1,586
Total long-lived assets	$	152,341	$	174,156

Long-lived assets include goodwill, other intangibles assets, equity investment in ACL, investments in content, and property, equipment and improvements.

NOTE 4. EQUITY EARNINGS IN AFFILIATE

In February 2012, Acorn Media acquired a 64% interest in ACL for total purchase consideration of £13.7 million or approximately $21.9 million excluding direct transaction costs.  The acquisition gave Acorn Media a majority ownership of ACL’s extensive works including more than 80 novels and short story collections, 19 plays, and a film library of over 100 made-for-television films.

We account for our investment in ACL using the equity method of accounting because (1) Acorn Media is only entitled to appoint one-half of ACL’s board members and (2) in the event the board is deadlocked, the chairman of the board, who is appointed by the directors elected by the minority shareholders, casts a deciding vote.

As of the Business Combination, our 64% share of the difference between ACL’s fair value and the amount of underlying equity in ACL’s net assets was approximately $18.7 million.  This basis-difference is primarily attributable to the fair value of ACL’s copyrights, which expire in 2046, and is being amortized through 2046 using the straight-line method.  Basis-difference amortization is recorded against our share of ACL’s net income in our consolidated statements of operations, however this amortization is not included within ACL’s financial statements.

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A summary of the ACL investment account is as follows:

(In thousands)
Investment balance at December 31, 2012	$	25,449
Share of income		3,834
Dividends received		(4,005	)
Basis-difference amortization		(538	)
Translation adjustment		493
Investment balance at December 31, 2013		25,233
Share of income		3,169
Dividends received		(4,040	)
Basis-difference amortization		(589	)
Translation adjustment		(1,492	)
Investment balance at December 31, 2014	$	22,281

The following summarized financial information is derived from financial statements of ACL as of December 31, 2014 and 2013 (balance sheets), and for the years ended December 31, 2014 and 2013 (income statements):

(In thousands)	December 31,
	2014			2013
Cash	$	4,107		$	3,683
Film costs		14,728			9,835
Other assets		10,322			8,294
Production obligation payable		(3,007	)		—
Deferred revenues		(15,527	)		(8,895	)
Other liabilities		(2,147	)		(2,396	)
Equity	$	8,476		$	10,521

	Years Ended December 31,
(In thousands)	2014			2013
Revenues	$	13,460		$	36,976
Film cost amortization		(3,349	)		(25,558	)
General, administrative and other expenses		(3,542	)		(3,307	)
Income from operations		6,569			8,111
Net income	$	4,939		$	5,985

Balance sheet amounts have been translated from the GBP to U.S. dollar using the December 31, 2014 and 2013 exchange rates.  Income statement amounts have been translated from the GBP to U.S. dollar using the average exchange rate for each of the years presented.

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NOTE 5. ACCOUNTS RECEIVABLE

Accounts receivable are primarily derived from:  (1) the sale of physical content (DVDs) to retailers and wholesale distributors who ship to mass retail, (2) direct-to-consumer, e-commerce, catalog and download-to-own sales and (3) video content we license to broadcast, cable/satellite providers and digital subscription platforms like Netflix and Amazon.  Our accounts receivable typically trends with retail seasonality.

(In thousands)	December 31,
	2014			2013
Wholesale	$	23,922		$	30,966
IP Licensing		608			—
Direct-to-Consumer		762			67
Accounts receivable before allowances and reserves		25,292			31,033
Less:  reserve for returns		(7,870	)		(10,690	)
Less:  allowance for doubtful accounts		(33	)		(19	)
Accounts receivable, net	$	17,389		$	20,324

Wholesale receivables are primarily billed and collected by our U.S. distribution facilitation partner, SPHE.  Each quarter, our distribution partners preliminarily settle our wholesale receivables assuming a timing lag on collections and an average-return rate.  When actual returns differ from the amounts previously assumed, adjustments are made that give rise to payables and receivables between us and our distribution partners.  Amounts vary and tend to be seasonal following our sales activity.  As of December 31, 2014, we owed our distribution partners $3.1 million for receivables settled as of year-end; and as of December 31, 2013, our distribution partners owed us $700,000 for receivables settled as of year-end.  The wholesale receivables are reported net of amounts owed to the distribution partner as amounts are offset against each other when settling.

Our Direct-to-Consumer receivable represents amounts due to us from our merchant bank related to our credit card transactions processed as of year-end.

NOTE 6. INVENTORIES

Inventories are summarized as follows:

(In thousands)	December 31,
	2014		2013
Packaged discs	$	9,580	$	11,340
Packaging materials		1,309		1,873
Other merchandise (1)		2,140		2,376
Inventories	$	13,029	$	15,589

⁽¹⁾ Other merchandise consists of third-party products, primarily gifts, jewelry, and home accents.

For each reporting period, we review the value of inventories on hand to estimate the recoverability through future sales.  Values in excess of anticipated future sales are booked as obsolescence reserve.  Our obsolescence reserve was $11.1 million and $6.5 million as of December 31, 2014 and 2013, respectively.

During the years ended December 31, 2014 and 2013, we incurred impairment charges associated with our inventories due to adjustments for lower of cost or market valuation, shrinkage, and excess and obsolescence of $2.4 million and $6.5 million, respectively.  During the second quarter of 2013, we recorded an inventory impairment charge of $3.3 million resulting from the early termination arrangement with a content supplier. The impairment charge reflected the shortened sell-off period ending March 2014.

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NOTE 7. PROPERTY, EQUIPMENT AND IMPROVEMENTS

Property, equipment and improvements are summarized as follows:

	December 31,
(In thousands)	2014			2013
Furniture, fixtures and equipment	$	1,799		$	1,226
Software		1,477			1,174
Leasehold improvements		610			533
Property, equipment and improvements		3,886			2,933
Less:  accumulated depreciation and amortization		(1,514	)		(1,174	)
Property, equipment and improvements, net	$	2,372		$	1,759

Depreciation expense for the years ended December 31, 2014 and 2013 was $878,000, and $869,000, respectively.  We capitalized $181,000 of internal-use software development costs for the year ended December 31, 2013.  We did not capitalize any internal-use software development costs for the year ended December 31, 2014.

During the periods ended December 31, 2014 and 2013, there was no impairment to property, equipment and improvements.

NOTE 8. INVESTMENTS IN CONTENT

Investments in content are as follows:

	December 31,
(In thousands)	2014		2013
Released	$	57,766	$	66,527
Completed, not released		7,205		10,387
In-production		2,554		4,727
Investments in content, net	$	67,525	$	81,641

Investments in content are stated at the lower of unamortized cost or estimated fair value. The valuation of investments in content is reviewed on a title-by-title basis when an event or change in circumstances indicates that the fair value of content is less than its unamortized cost.  Impairment charges for the years ended December 31, 2014 and 2013 were $4.8 million and $6.4 million, respectively.  Impairments are included in cost of sales.

As a result of the early termination with a content supplier during the quarter ended June 30, 2013, we incurred during 2013 accelerated amortization and an impairment charge totaling $1.5 million reflecting the shortened content distribution arrangement.

In determining the fair value of content (Note 14, Fair Value Measurements), we employ a discounted cash flows (or DCF) methodology.  Key inputs employed in the DCF methodology include estimates of ultimate revenue and costs, as well as a discount rate.  The discount rate utilized in the DCF analysis is based on a market participant’s weighted average cost of capital plus a risk premium representing the risk associated with producing a particular type of content.

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Our estimated future amortization for investments in content is as follows:

(In thousands)
Period	Estimated Amortization		Percentage
1 Year	$	18,046		31.2	%
2 - 3 Years		22,102		38.3	%
4 - 5 Years		10,814		18.7	%
Thereafter		6,804		11.8	%
	$	57,766		100.0	%

NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill by segment is as follows:

 (In thousands)

	Wholesale			Direct-to-Consumer			Total
Balance as of January 1, 2013
Goodwill	$	37,966		$	9,416		$	47,382
Adjustment		(1,194	)		—			(1,194	)
Final purchase price allocation and adjustments		6,264			(6,580	)		(316	)
Balance as of December 31, 2013
Goodwill		43,036			2,836			45,872
Impairment loss during year		—			(981	)		(981	)
Balance as of December 31, 2014
Goodwill		43,036			2,836			45,872
Accumulated impairment losses		—			(981	)		(981	)
	$	43,036		$	1,855		$	44,891

Of the goodwill recognized, approximately $21.4 million will be amortized over 15 years for tax purposes giving rise to a future tax deduction.

During the fourth quarter of 2014, we reviewed our estimates for accruals of price adjustments that we provide to our customers.  Specifically, we analyzed the cost of sales impact of these accruals, which we previously did not consider or recognize for financial statement reporting purposes at the time of accrual.  The impact to the previously reported net loss, total comprehensive loss and cash flows for 2013 was insignificant, and as such, we only adjusted $1.2 million between goodwill and accrued royalties and distribution fees within our 2013 consolidated balance sheet.  This adjustment had the effect of reducing both previously reported amounts.

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Goodwill was tested for impairment for the periods presented and an impairment loss of $981,000 was recognized during 2014 within our Direct-to-Consumer segment.  No impairments were recognized during 2013.

During the fourth quarter of 2014, the stock price of our publicly traded common stock decreased by 48% and our Direct-to-Consumer segment recognized lower revenue during the quarter compared to prior year’s fourth quarter.  Given the magnitude of these decreases, we considered these to be triggering events and hired a valuation firm to fair value our reporting units that held the majority of our goodwill.  The valuation firm fair valued our reporting units using both the market approach (by using comparable businesses) and the income approach. Significant inputs were the selection of comparable companies, our five-year forecast and a risk-appropriate discount rate of 18%.  The results of the valuations were that only our Direct-to-Consumer segment in the UK had a carrying book value in excess of its fair value.  Management assessed the amount of implied goodwill within this reporting unit and concluded that its goodwill was fully impaired.  The goodwill that remains in our Direct-to-Consumer segment is associated with our proprietary SVOD channels.

Other Intangibles

A summary of our intangibles and accumulated amortization are as follows:

	December 31, 2014
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net
Trade name	$	10,950	$	(1,642	)	$	9,308
Customer relationships		9,290		(6,039	)		3,251
Websites		3,331		(2,211	)		1,120
Supplier contracts		1,720		(609	)		1,111
Option for future content		900		(418	)		482
Leases		400		(400	)		—
	$	26,591	$	(11,319	)	$	15,272

	December 31, 2013
(In thousands)	Gross Carrying  Amount		Accumulated Amortization			Net
Trade name	$	10,950	$	(913	)	$	10,037
Customer relationships		9,290		(3,484	)		5,806
Websites		2,962		(1,386	)		1,576
Supplier contracts		1,720		(338	)		1,382
Option for future content		900		(78	)		822
Leases		400		(372	)		28
	$	26,222	$	(6,571	)	$	19,651

Amortization expense for the years ended December 31, 2014 and 2013 was $4.8 million and $5.3 million, respectively.  Costs incurred to develop, upgrade or enhance functionality of websites are capitalized while website operating costs are expensed as incurred.  During the periods ended December 31, 2014 and 2013, we capitalized $437,000 and $173,000 of costs related to our websites, respectively.

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As of December 31, 2014, the remaining amortization by year for intangible assets is as follows:

(In thousands)
Year Ended December 31,
	Amount
2015	$	3,654
2016		2,185
2017		1,849
2018		1,013
2019		913
Thereafter		5,658
	$	15,272

NOTE 10. DEBT

Debt as of December 31, 2014 consists of the following:

(In thousands)

	Maturity Date	Interest Rate	December 31, 2014
Senior secured term notes	September 11, 2019	LIBOR + 9.9% -10.64%	$	69,388
Less: debt discount				(4,509	)
Total senior-term notes, net of discount				64,879
Subordinated notes payable to prior Image shareholders	October 3, 2018	12 %		16,034
Debt			$	80,913

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Debt as of December 31, 2013 consists of the following:

(In thousands)

	Maturity Date	Interest Rate	December 31, 2013
Revolving credit facility	October 3, 2017	Prime + 5% or LIBOR + 6%	$	14,949
Senior secured term notes:
Term loan – A	October 3, 2017	Prime or LIBOR +  4.5% - 5.5%		20,476
Term loan – B	April 3, 2018	Prime or LIBOR + 6.25% - 7.25%		12,287
Term loan – C	April 3, 2018	Prime or LIBOR + 9.25% - 10.25%		15,517
Principal balance outstanding				48,280
Less: debt discount				(2,007	)
Total senior term notes				46,273
Subordinated notes payable prior Image shareholders	October 3, 2018	12%		15,042
Debt, net of discount				76,264
Subordinated production loan - Foyle's War	November 8, 2014	LIBOR + 2.15%		1,294
Debt			$	77,558

On September 11, 2014, we refinanced our secured debt into a new credit agreement with new lenders.

Future minimum principal payments as of December 31, 2014 are as follows:

(In thousands)

	Senior Notes		Subordinated Notes		Total
2015	$	2,450	$	—	$	2,450
2016		2,975		—		2,975
2017		4,375		—		4,375
2018		59,588		16,034		75,622
	$	69,388	$	16,034	$	85,422

Currently, the subordinated notes mature in 2018 and the senior notes mature in 2019; however, if we do not subsequently extend the subordinated debt maturity beyond 2019, then the new senior notes’ maturity would accelerate in conjunction with the repayment of the subordinated notes in 2018.  The above table reflects the assumption that no extension of the subordinated notes occurs.  The senior notes’ minimum principal payments in 2018 would be $5.3 million if the senior notes’ maturity is not accelerated.

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New Credit Agreement

On April 15, 2015, we amended our Credit Agreement (as defined below).  The amended terms are disclosed in our subsequent events footnote (See Note 23, Subsequent Events).

On September 11, 2014, we entered into a $70.0 million Credit and Guaranty Agreement (the “Credit Agreement”) with a syndicate of lenders led by McLarty Capital Partners, as administrative agent. The Credit Agreement consists of a term loan totaling $70.0 million with a maturity of five years, at an interest rate equal to (a) LIBOR plus 10.64% for so long as the unpaid principal amount of the Credit Agreement is greater than $65.0 million, and (b) LIBOR plus 9.9% thereafter.  LIBOR has a floor of 0.25%.  Principal payment obligations as a percentage of the amount initially borrowed are 3.5% per annum paid quarterly for the first two years, 5.0% for the third year and 7.5% for the remaining term with any unpaid principal balance due at maturity.  The obligations under the Credit Agreement are secured by a lien on substantially all of our consolidated assets pursuant to the Pledge and Security Agreement, dated as of September 11, 2014.

Under the Credit Agreement, interest and principal is payable quarterly with principal payments beginning on December 31, 2014. Beginning in 2016, we are obligated to make certain accelerated principal payments annually which are contingent upon:  (1) the occurrence of consolidated excess cash flows, as defined in the Credit Agreement, and (2) only to the extent at which such excess cash flows are above our minimum cash threshold of $12.0 million.  We are permitted to make additional voluntary principal payments under the Credit Agreement, but prepayments are subject to an applicable prepayment premium of:  (a) 5% if prepaid during the first year, (b) 3% if prepaid during the second year, and (c) 1.5% if prepaid during the third year.  The first $5.0 million of voluntary prepayment is not subject to any prepayment premium.

We incurred $4.9 million in original issuance discounts and other related fees paid to lenders under the Credit Agreement.  We also incurred $1.3 million in fees for legal and other professional services.  Repayment of our previous credit facility included principal and accrued interest of $56.1 million ($15.0 million for our revolving credit facility and $41.1 million for our term loans and accrued interest).

The Credit Agreement contains certain financial and non-financial covenants beginning on December 31, 2014.  Financial covenants are assessed quarterly and are based on Adjusted EBITDA, as defined in the Credit Agreement.  Financial covenants vary each quarter and generally become more restrictive over time.  Financial covenants include the following:

	December 31, 2014	2015	2016	Thereafter
Leverage Ratios:
Senior debt-to-Adjusted EBITDA	4.64 : 1.00	Ranges from 4.87 : 1.00 to 4.03 : 1.00	Ranges from 3.86 : 1:00 to 2:67 : 1.00	2.67 : 1.00
Total debt-to-Adjusted EBITDA	5.71 : 1.00	Ranges from 6.09 : 1.00 to 5.06 : 1.00	Ranges from 4.82 : 1:00 to 3.44 : 1.00	3.44 : 1.00
Fixed charge coverage ratio	1.10 : 1.00	Ranges from 1.07 : 1.00 to 1.20 : 1.00	Ranges from 1.24 : 1.00 to 1.59 : 1.00	1.59 : 1.00

We are also obligated to maintain a minimum valuation ratio computed on the outstanding principal balance of our senior debt compared to the sum of our valuations of our content library and our investment in ACL.  To the extent the valuation ratio exceeds the allowed threshold, we are obligated to make an additional principal payment such that the threshold would not be exceeded after giving effect of this payment.  The valuation threshold is 83% as long as the unpaid principal balance exceeds $65.0 million and 75% thereafter.

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The Credit Agreement contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross defaults to certain other contracts (including, for example, business arrangements with Sony Pictures Home Entertainment and other material contracts) and indebtedness and events constituting a change of control or a material adverse effect in any of our results of operations or conditions (financial or otherwise).  The occurrence of an event of default will increase the applicable rate of interest and could result in the acceleration of our obligations under the Credit Agreement.

The Credit Agreement imposes restrictions on such items as encumbrances and liens, payments of dividends, other indebtedness, stock repurchases, capital expenditures and entering into new lease obligations.  Additional covenants restrict our ability to make certain investments, such as loans and equity investments, or investments in content that are not in the ordinary course of business.  Pursuant to the new Credit Agreement, we must maintain at all times a cash balance of $3.5 million.  As of December 31, 2014, we were in compliance with our Credit Agreement.

When repaying the previous credit facility, we recognized a $1.5 million loss from the early extinguishment of debt, which is reported separately within our statement of operations.  This loss primarily represented the unamortized debt discount and deferred financing costs at the time of repayment of our prior credit facility.

Subordinated Notes Payable and Other Debt

On April 15, 2015, we amended our subordinated promissory notes that were issued to the selling preferred stockholders of Image.  The amended terms are disclosed in our subsequent events footnote (See Note 23, Subsequent Events).

In October 2012, we issued unsecured subordinated promissory notes in the aggregate principal amount of $14.8 million to the selling preferred stockholders of Image.  The subordinated notes mature on the earlier of October 3, 2018 or six months after the latest stated maturity of the senior debt issued pursuant to the Credit Agreement.  The unsecured subordinated notes bear an interest rate of 12% per an annum, of which 5.4% is payable in cash annually and at our discretion the balance is either paid through the issuance of shares of our common stock valued at their then-current market price, or accrues and is added to the principal, which is payable upon maturity.  During the second quarter of 2014, interest was due of $1.8 million of which $992,000 was added to the principal balance of these notes and the remainder was paid to the debt holders.  At December 31, 2014, our principal balance due pursuant to these notes was $16.0 million.

In October 2013, we began our production of the next season of the franchise series of Foyle’s War.  Acorn Productions Limited and Acorn Global Enterprises Limited, both wholly-owned subsidiaries of RLJE Ltd., entered into a cash advance facility (the FW9 Facility) with Coutts and Co., a U.K. based lender, for purposes of producing three ninety-minute television programs entitled “Foyle’s War Series 9.” The facility carried interest at a rate of LIBOR plus 2.15%.  Interest and repayment of advances received were due on or before November 8, 2014.  This facility was substantially secured by (i) executed license agreements whereby we have pre-sold certain broadcast and distribution rights and (ii) U.K. tax credits based on anticipated qualifying production expenditures.  The assets and intellectual property are collateral of the Credit Agreement now that the loan is fully paid and settled.  At December 31, 2014, this production loan was fully repaid.

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NOTE 11. STOCK WARRANTS

RLJE had the following warrants outstanding:

	December 31, 2014
(In thousands, except per share data)	Shares		Exercise Price		Remaining Life
Registered warrants		15,375	$	12.00	2.75 years
Sponsor warrants		3,817	$	12.00	2.75 years
Unregistered warrants		1,850	$	12.00	2.75 years
		21,042

At December 31, 2013 the same amount of shares at the same exercise price were outstanding with a remaining life of 3.75 years.  The warrants have a term of five years beginning October 3, 2012, and provide the warrant holder the right to acquire a share of our common stock for $12.00 per share. The warrants are redeemable by us for $0.01 per warrant share if our common stock trades at $17.50 or more per share for 20 out of 30 trading days. The warrants contain standard anti-dilution provisions.

The warrants contain a provision whereby the exercise price will be reduced if RLJE reorganized as a private company.  The reduction in exercise price depends upon the amount of other consideration, if any, received by the warrant holders in the reorganization and how many years after the Business Combination reorganization is consummated.  Generally, the reduction in exercise price would be between $6.00 and $9.00 assuming no additional consideration was received.  Because of this provision, all warrants are being accounted for as a derivative liability in accordance with ASC 815-40, Contracts in Entity’s Own Equity.

The fair value of the warrants as of December 31, 2014 and 2013 was $601,000 and $4.1 million, respectively.  The valuation of the warrants is a Level 3 measurement.  The registered warrants had been traded on the over-the-counter market and previously were reported as a Level 1 measurement, but due to the lack of trading activity since the first quarter of 2014, the warrant valuation for registered warrants was transferred to Level 3 and valued in the same manner of the Sponsor and unregistered warrants.  Because RLJE has agreed not to exercise its redemption right pertaining to certain warrants held by RLJ SPAC Acquisition LLC (or the Sponsor) and because the unregistered warrants generally have a discounted fair value as compared to the registered warrants, the valuation of the sponsor warrants and the un-registered warrants has always been a Level 3 measurement.  The decrease in the fair value of the warrants for the years ended December 31, 2014 and 2013 was $3.5 million and $201,000, respectfully.

NOTE 12. EQUITY

Common and Preferred Shares

Our articles of incorporation authorize us to issue up to 250 million shares of common stock and one million shares of preferred stock, par value $0.001 per share.  As of December 31, 2014, there were 13,724,756 shares issued and 13,335,258 shares outstanding.  At December 31, 2013, there were 13,700,862 shares of common stock issued and outstanding.  There were no shares of preferred stock issued or outstanding at December 31, 2014 and 2013.  As of December 31, 2014, the rights and preferences of the preferred stock have not yet been designated.

On April 15, 2015, we issued 15,000 shares of Bridge Preferred Stock.  The terms are disclosed in our subsequent events footnote (See Note 23, Subsequent Events).

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On October 3, 2012, in connection with the consummation of the Business Combination, RLJE and certain Image and Acorn Media selling shareholders entered into an amended and restated registration rights agreement (the “Registration Rights Agreement”), in which RLJE agreed to use its best efforts to register certain of its securities held by the stockholders who are a party to the Registration Rights Agreement under the Securities Act of 1933, as amended (the “Securities Act”).  Such stockholders are entitled to make up to three demands, excluding short form registration demands, that RLJE register certain of its securities held by them for sale under the Securities Act.  In addition, such stockholders have the right to include their securities in other registration statements filed by RLJE.  At December 31, 2014, no demand had been received.

Included in our common shares outstanding at December 31, 2013 were 898,438 shares held by the Sponsor as part of the initial public offering of RLJE.  These shares were subject to forfeiture over a two-year period if certain stock price targets were not achieved.  As of December 31, 2014, 458,952 common shares have been returned to the Company and the remaining shares were returned in January 2015.

Treasury Shares

As shares are forfeited, they become treasury shares.  Forfeiture of shares occurs when directors or employees resign or stop working for the Company prior to achieving vesting conditions for certain stock-based compensation awards, when performance conditions are not met regardless of continued employment or service or when Sponsor shares are returned to the Company as discussed above.  Treasury shares are available to RLJE for future grants or issuances of shares as elected by the Company.  At December 31, 2014, we had 389,498 of treasury shares outstanding.  At December 31, 2013, we did not have any treasury shares.

NOTE 13. STOCK-BASED COMPENSATION

Equity Compensation Plan

As of December 31, 2014 and 2013, we had one equity compensation plan.  The 2012 Incentive Compensation Plan of RLJ Entertainment, Inc. (the “Incentive Plan”) was approved by the shareholders of RLJ Acquisition, Image and Acorn Media on September 20, 2012.  The Incentive Plan is administered by the compensation committee of our Board of Directors, and allows the compensation committee to award up to a maximum of 1,244,153 shares under the Incentive Plan.  The compensation committee may award options, stock appreciation rights, restricted stock awards, restricted stock unit awards, bonus stock and awards in lieu of obligations, dividend equivalents, performance awards, and other stock-based awards (as those terms are defined in the Incentive Plan). No person may be granted (i) Options or Stock Appreciation Rights with respect to more than 750,000 shares or (ii) Restricted Stock, Restricted Stock Units, Performance Shares, and/or Other Stock Based Awards with respect to more than 750,000 shares. In addition, no person may be granted awards worth more than $1,000,000 of grant date fair value with respect to any 12-month Performance Period (as that term is defined in the Incentive Plan) under the Incentive Plan, or $2,000,000 with respect to any Performance Period that is more than 12 months.  The maximum term allowed for an option is 10 years and a stock award shall either vest or be forfeited not more than 10 years from the date of grant.

At December 31, 2014 and 2013, there were 787,668 and 883,259 shares, respectively, available for future grants under the Incentive Plan.

Restricted Stock-Based Compensation Grants

Compensation expense relating to the restricted stock awards for the years ended December 31, 2014 and 2013 was $769,000 and $805,000, respectively.  Unrecognized stock-based compensation expense relating to these restricted stock awards of approximately $504,000 at December 31, 2014 is expected to be expensed ratably over the remaining vesting period through June 2016. The weighted average remaining vesting period for non-vested shares is nine months.  Compensation expense related to restricted stock awards is included in general and administrative expenses.

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During the year ended December 31, 2014, 190,280 shares of restricted common stock were granted, 182,206 shares were vested and 93,742 shares were forfeited.   Of the 190,280 shares granted, 164,780 shares were granted to executive officers and directors and 25,500 shares were granted to other members of management.  Of the shares forfeited, 65,297 shares of restricted stock were forfeited based upon the failure to achieve the required performance conditions and the remainder of the forfeitures were due to employee resignations.  The shares granted in 2014 were fair valued on the date of grant with a range of $3.49 - $5.00 per share, for a total value of approximately $766,000.  These restricted shares will vest and be expensed over a three-year period for executive management and other management while restricted shares granted to directors vest and are expensed over a one-year period as a component of general and administrative expenses.  The vesting of restricted shares is subject to the achievement of certain service criteria, qualitative performance criteria, or both.  The amount of expense recognized to date has been reduced by estimated forfeitures related to certain performance targets that are not likely to be achieved.  The restricted stock may be subject to further forfeitures if the employee or director terminates his or her service during the vesting period or future performance measures are not achieved.

Restricted stock award activity under the Incentive Plan for the year ended December 31, 2014, and changes during the year then ended are presented below:

(In thousands, except per share data)
	Service Shares				Performance Shares
Restricted Stock-Based Compensation Award Activity	Shares			Weighted-Average Grant Date Fair Value	Shares			Weighted-Average Grant Date Fair Value
Non-vested shares at January 1, 2014	188		$	5.38	135		$	5.15
Granted	130			3.76	60			4.60
Vested	(127	)		5.51	(56	)		4.60
Forfeited	(12	)		5.01	(83	)		5.16
Non-vested shares at December 31, 2014	179		$	4.13	56		$	5.09

During the year ended December 31, 2013, 323,316 shares of restricted common stock were granted.  Of the 323,316 shares granted, 233,707 shares were granted to executive officers and directors and 89,609 shares were granted to other members of management. The shares were fair valued on the date of grant with a range of $3.72 - $5.97 per share, for a total value of approximately $1.7 million. These restricted shares will vest and be expensed over a three-year period for executive management and other management while restricted shares granted to directors vest and are expensed over a one-year period as a component of general and administrative expenses.  The vesting of restricted shares is subject to the achievement of certain service criteria, qualitative performance criteria, or both.

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Restricted stock award activity under the Incentive Plan for the year ended December 31, 2013, and changes during the year then ended are presented below:

(In thousands, except per share data)
	Service Shares					Performance Shares
Restricted Stock-Based Compensation Award Activity	Shares			Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Non-vested shares at January 1, 2013		38		$	7.98		—	$	—
Granted		188			5.38		135		5.15
Vested		(38	)		7.98		—		—
Forfeited		—			—		—		—
Non-vested shares at December 31, 2013		188		$	5.38		135	$	5.15

All restricted stock amounts will participate in dividends, if declared, prior to their vesting date.

NOTE 14. FAIR VALUE MEASUREMENTS

Warrant Liability

We have warrants outstanding to purchase 21,041,667 shares of our common stock, which are recorded at fair value on the consolidated balance sheets.  Of these warrants, 15,375,000 are warrant shares that are registered and traded on the over-the-counter market.  Since the first quarter of 2014, there has been a lack of a trade activity for the registered warrants, and as such, when assessing their fair value we transferred them from Level 1 to Level 3 within the fair-value hierarchy.  At December 31, 2013, when the registered warrants were reported as a Level 1 valuation, we used the closing market price of our market-traded warrants to determine the fair value of these registered warrants.

As of December 31, 2014, we determined the fair value of the registered warrants using a Monte Carlo simulation model.  Inputs to the model are stock volatility, contractual warrant terms (which are remaining life of the warrant, the redemption feature, the exercise price, and assumptions for the reduction in exercise price if we were to reorganize as a private company), the risk-free interest rate, and a discount for the lack of marketability (DLOM) pertaining to the underlying common stock as the shares acquirable are not registered.  We use the closing market price of our common stock to compute stock volatility.  The DLOM is determined using the Finnerty Average-Strike Put Option Marketability Discount Model (Finnerty Model), which takes into consideration the discount period, stock dividend rates, and stock volatility.  This DLOM ranged between 9.1% and 11.24% during 2014.  Assumptions regarding adjustments to the exercise price are based on management’s best estimates of the likelihood of reorganizing as a private company and the amount of the resulting exercise-price adjustment.

The remaining warrants, consisting of Sponsor Warrants of 3,816,667 and unregistered warrants of 1,850,000 are classified as Level 3 within the fair-value hierarchy.  Sponsor Warrants differ from the registered warrants as we have agreed not to exercise our redemption provision as long as the Sponsor continues to hold the warrants.  We determined the fair value of these warrants using a Monte Carlo simulation model and using the same assumptions used for the registered warrants, except we did not include the redemption feature.

Unregistered warrants differ from the registered warrants in that they have not been registered.  We determined the fair value of these warrants by taking the fair value of a registered warrant and discounting it using the Finnerty Model for the lack of marketability as these warrants are not registered.   Prior to June 30, 2014, we determined this DLOM using the estimated fair value of a protective put relative to the fair value of a registered share of common stock.  This DLOM ranged between 17.8% and 34.0% during 2014, and 27.0% and 29.0% during 2013.

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The following tables represent the valuation of our warrant liability within the fair-value hierarchy:

(In thousands)	December 31, 2014
	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	601	$	601

(In thousands)	December 31, 2013
	Level 1		Level 2		Level 3		Total
Warrant liability	$	2,630	$	—	$	1,493	$	4,123

The following tables include a roll-forward of the warrant liability activity classified within Level 1 and Level 3 of the fair-value hierarchy:

(In thousands)	Year Ended December 31, 2014
	Level 1			Level 2		Level 3			Total
Warrant liability at December 31, 2013	$	2,630		$	—	$	1,493		$	4,123
Change in fair-value hierarchy		(2,755	)		—		2,755			—
Change in fair value of warrant liability		125			—		(3,647	)		(3,522	)
Warrant liability at December 31, 2014	$	—		$	—	$	601		$	601

(In thousands)	Year Ended December 31, 2013
	Level 1			Level 2		Level 3			Total
Warrant liability at December 31, 2012	$	2,755		$	—	$	1,569		$	4,324
Change in fair value of warrant liability		(125	)		—		(76	)		(201	)
Warrant liability at December 31, 2013	$	2,630		$	—	$	1,493		$	4,123

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Investments in Content

When events and circumstances indicate that investments in content are impaired, we determine the fair value of the investment; and if the fair value is less than the carrying amount, we recognize additional amortization expense equal to the excess.  Our nonrecurring fair value measurement information of assets and liabilities is classified in the tables below:

(In thousands)	Year Ended December 31, 2014
	Level 1		Level 2		Level 3		Total		Loss
Investments in content	$	—	$	—	$	21,804	$	21,804	$	4,817

(In thousands)	Year Ended December 31, 2013
	Level 1		Level 2		Level 3		Total		Loss
Investments in content	$	—	$	—	$	5,693	$	5,693	$	6,419

During the years ended December 31, 2014 and 2013, the investments in content were impaired by $4.8 million and $6.4 million, respectively.  In determining the fair value of our investments in content, we employ a DCF methodology.  Key inputs employed in the DCF methodology include estimates of a film's ultimate revenue and costs as well as a discount rate.  The discount rate utilized in the DCF analysis is based on our weighted average cost of capital plus a risk premium representing the risk associated with producing a particular film or television program.  As the primary determination of fair value is determined using a DCF model, the resulting fair value is considered a Level 3 measurement.

NOTE 15. NET INCOME (LOSS) PER COMMON SHARE DATA

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per common share for the years ended December 31, 2014 and 2013:

(In thousands, except per share data)	Years Ended December 31,
	2014			2013
Basic and diluted:
Net loss	$	(21,200	)	$	(31,077	)
Denominator - basic and diluted:
Weighted-average common shares outstanding – basic		12,532			12,447
Effect of dilutive securities		—			—
Weighted-average common shares outstanding – diluted		12,532			12,447
Net loss per common share:
Basic and diluted	$	(1.69	)	$	(2.50	)

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We have outstanding warrants to acquire 21,041,667 shares of common stock that are not included in the computation of diluted net loss per common share as the effect would be anti-dilutive because their exercise price of $12 per share exceeds the fair value of our common stock.  For the years ended December 31, 2014 and 2013, we have weighted average outstanding shares of approximately 613,000 and 898,000, respectively, which are held by founding shareholders that are forfeitable (See Note 12, Equity), that are not included in the computation of basic or diluted net loss per share as the effect would be anti-dilutive.  For the years ended December 31, 2014 and 2013, we have weighted average outstanding shares of approximately 923,000 and 1,084,000 shares, respectively of restricted common stock, that are not included in the computation of basic and diluted net loss per share as the effect would be anti-dilutive.

NOTE 16. INCOME TAXES

RLJE files income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. Our subsidiaries in the United Kingdom and Australia continue to file income tax returns in their foreign jurisdictions.

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  We must assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent that it is more likely than not that such deferred tax assets will not be realized, we must establish a valuation allowance.

As of December 31, 2014, we have a valuation allowance against 99% of our deferred tax assets, which are composed primarily of net operating loss (or NOL) carryforwards that were either acquired in the Business Combination or generated in 2013 and 2014.  Even though we have reserved all of these net deferred tax assets for book purposes, we would still be able to utilize them to reduce future income taxes payable should we have future taxable earnings.  To the extent our deferred tax assets relate to NOL carryforwards, the ability to use such NOLs against future earnings will be subject to applicable carryforward periods.  As of December 31, 2014, we had NOL carryforwards for Federal and state tax purposes of approximately $67.9 million and approximately $60.7 million, respectively, which are available to offset taxable income through 2034.  Our NOL carryforwards begin to expire in 2017.  NOL carryforwards that were acquired in the Business Combination reflect our assessment of an annual limitation on the utilization of these carryforwards due to ownership change limitations as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state limitations.

Income tax expense is summarized below:

(In thousands)	Years Ended December 31,
	2014			2013
Current
Federal	$	—		$	—
State		66			72
Foreign		145			665
		211			737
Deferred
Federal		(302	)		580
State		22			94
Foreign		468			790
		188			1,464
Total Tax Expense	$	399		$	2,201

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Income before provision for income taxes is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Domestic	$	(22,711	)	$	(33,778	)
Foreign		1,910			4,902
	$	(20,801	)	$	(28,876	)

The tax effects of temporary differences that give rise to a significant portion of the net deferred tax assets and liabilities at are presented below:

	Years Ended December 31,
(In thousands)	2014						2013
	U.S. Federal and State			Foreign			U.S. Federal and State			Foreign
Deferred tax assets:
Provision for lower of cost or market inventory write-downs	$	4,232		$	—		$	5,174		$	—
Net operating loss carryforwards		25,173			416			18,359			—
Allowance for sales returns		1,208			—			1,166			—
Allowance for doubtful accounts receivable		12			—			—			—
Marketing discounts and price protection reserves		2,559			—			1,559			—
Accrued compensation and benefits		173			—			298			—
Tax credits carryforwards		4,156			—			1,980			—
Other		371			13			353			—
Deferred tax assets		37,884			429			28,889			—
Less valuation allowance		(35,837	)		(416	)		(27,047	)		—
Deferred tax assets		2,047			13			1,842			—
Deferred tax liabilities:
Intangible assets		—			—			(1,409	)		—
Warrant liability		(1,625	)		—			(308	)		—
Goodwill amortization		(833	)		—			(674	)		—
Equity income in ACL		—			(1,604	)		—			(1,140	)
Other		—			—			(125	)		—
Deferred tax liabilities		(2,458	)		(1,604	)		(2,516	)		(1,140	)
Net deferred tax assets and liabilities	$	(411	)	$	(1,591	)	$	(674	)	$	(1,140	)

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A reconciliation of income tax benefit based on the federal statutory rate to actual income tax expense (benefit) is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Expected income tax benefit - 34%	$	(7,072	)	$	(9,818	)
Income not subject to income tax		—			(1,499	)
State income taxes, net of federal benefit		66			73
Non-deductible expenses		93			85
Change in valuation allowance		9,206			13,406
Change in prior year deferred tax allowance		(671	)		—
Foreign income taxes		145			—
Foreign tax credit		(1,132	)		—
Other		(236	)		(46	)
Total tax expense	$	399		$	2,201

Our significant tax returns are filed in the following jurisdictions:  United States, United Kingdom and in the following states:  Maryland, California and Illinois.  The tax years for 2009 through 2014 remain open to examination.  We are not currently under examination by any of the jurisdictions where we file significant tax returns.  We believe that our tax filing positions and deductions will be sustained if audited and we do not anticipate any adjustments that would result in a material adverse effect on our financial condition, results of operations, or cash flow.  Therefore, no reserves for uncertain tax positions have been recorded.

NOTE 17. STATEMENTS OF CASH FLOWS

Supplemental Disclosures

	2014		2013
Cash paid during the period for:
Interest	$	7,016	$	4,765
Income taxes	$	499	$	2,565

During 2014 we incurred capital expenditures of $2.0 million of which $300,000 was accrued for and included within accounts payable and accrued liabilities as of year end.

NOTE 18. CUSTOMER RELATIONSHIP

During the year ended December 31, 2013, we terminated our business relationship with an inventory fulfillment partner and recorded a sales return of approximately $2.9 million, which negatively impacted our gross margin by approximately $1.3 million.  Additionally, we agreed to terms to early terminate a content output agreement with a content supplier effective December 31, 2013, exclusive of a 90-day sell off period. The result of the termination was a non-cash charge of approximately $4.6 million, which includes $603,000 of accumulated amortization, recorded in the second quarter of 2013, related to its unamortized content assets and inventories on the Company’s balance sheet.

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NOTE 19. SEVERANCE

During the year ended December 31, 2013, we incurred severance charges of $2.4 million as part of the implemented reorganization from the formation of RLJE with former employees.  During the year ended December 31, 2014, we recognized additional severance charges of $548,000.  The severance charges were recorded as a component of general and administrative expense.

NOTE 20. EMPLOYEE BENEFITS

Effective October 3, 2012, we established the RLJ Entertainment 401(k) Plan, a defined contribution 401(k) plan for the benefit of employees meeting certain eligibility requirements.  Under the plan, participants may contribute a portion of their earnings on a pre-tax basis.  Employee contributions are forwarded to the plan administrator and invested in various funds at the discretion of the employee.  RLJE matches a portion of those contributions based upon the employee’s compensation status in accordance with the U.S. Internal Revenue Code.  Our U.S. sponsor plan contributes up to four percent depending on the employee’s contribution beginning one month after the date of hire.  Our U.K. and Australia subsidiaries sponsor plans contribute between three to seven percent and nine percent, respectively, to employees beginning after a probationary period of three months to one year.

During the years ended December 31, 2014 and 2013, we incurred compensation expenses of $539,000 and $560,000, respectively, related to these plans.

NOTE 21. COMMITMENTS AND CONTINGENCIES

Operating Leases

RLJE’s principal executive office is located in Silver Spring, Maryland.  We also maintain offices in Woodland Hills, California; Stillwater, Minnesota; London, England and Sydney, Australia with varying terms and expiration dates.  All locations are leased.  A summary of our locations is as follows:

Location	Primary Purpose	Lease Expiration	Reporting Segment (1)
Silver Spring, MD	Executive Office/Administrative/Sales/ Content Acquisition	November 15, 2020	Corporate
Woodland Hills, CA	Administrative/Sales/Content Acquisition	June 30, 2021	Wholesale
Stillwater, MN	Sales and Administration for Direct-to-Consumer	April 30, 2022	Direct-to-Consumer
London, England	Content Development and Production/Sales/ Administration for the U.K., including ACL	July 1, 2018	IP Licensing/Wholesale/ Direct-to-Consumer
Sydney, Australia	Sales/Administration	March 1, 2017	Wholesale

⁽¹⁾ The segment descriptions above reflect the location’s primary activity.

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Future minimum annual rental payments by year under operating leases at December 31, 2014, are approximately as follows:

(In thousands)
Year Ended December 31,	Lease Commitment
2015	$	1,164
2016		1,166
2017		1,191
2018		1,056
2019		878
Thereafter		1,181
	$	6,636

Rent expense was $2.0 million and 1.4 million, for the years ended December 31, 2014 and 2013, respectively.

Employment Agreements

At December 31, 2014, our future contractual obligations under four employment agreements are summarized below.  Included in the amounts below are any minimum bonus or agreed-upon amounts to be paid within the employment contracts over the next five years as long as the employee continues to be an employee in good standing and meets the performance criteria within the individual employment agreements.  One of the four employment agreements does not have an expiration date and is included in each of the five years presented below.

(In thousands)
Year Ended December 31,	Employment Contracts
2015	$	1,683
2016		983
2017		750
2018		750
2019		750
	$	4,916

Future Royalty Obligations

At December 31, 2014, our future obligations for royalty advances, minimum royalty guarantees and exclusive distribution fee guarantees under the terms of our existing licenses and exclusive distribution agreements that have an off balance sheet commitment total $7.1 million.  These commitments will be recognized in 2015 within our consolidated financial statements upon the earlier of payment or upon delivery of content by the content supplier.

Legal Proceedings

In the normal course of business, we are subject to proceedings, lawsuits and other claims, including proceedings under government laws and regulations relating to content ownership and copyright matters.  While it is not possible to predict the outcome of these matters, it is the opinion of management, based on consultations with legal counsel, that the ultimate disposition of known proceedings will not have a material adverse impact on our financial position, results of operations or liquidity.

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NOTE 22. RELATED PARTY TRANSACTIONS

Equity Investments in Affiliates

All of ACL’s staff is employed by RLJE Ltd.  ACL was charged overhead and personnel costs for the years ended December 31, 2014 and 2013, of approximately $2.3 million and $2.1 million, respectively.

ACL paid dividends to RLJE Ltd. of $4.0 million and $4.0 million during the years ended December 31, 2014 and 2013, respectively.  Dividends received were recorded as a reduction to the ACL investment account.

Foreign Currency

We recognize foreign currency gains and losses, as a component of other expense, on amounts lent by Acorn Media to RLJE Ltd. and RLJE Australia.  As of December 31, 2014, Acorn Media had lent its U.K. subsidiaries approximately $15.5 million and its Australian subsidiary approximately $3.6 million.   Amounts lent will be repaid in U.S. dollars based on available cash. Movement in exchange rates between the U.S. dollar and the functional currencies (which are the British Pound Sterling and the Australian dollar) of those subsidiaries that were lent the monies will result in foreign currency gains and losses.  During the years ended December 31, 2014 and 2013, we recognized a loss of $1.1 million and $484,000, respectively.

The RLJ Companies, LLC

On June 27, 2013, The RLJ Companies, LLC (whose sole manager and voting member is the chairman of our board of directors) purchased from one of our vendors $3.5 million of contract obligations that we owed to the vendor.  These obligation were payable by us to the vendor through September 5, 2013.  Pursuant to the purchase, The RLJ Companies, LLC has become the account creditor with respect to these accounts.  These accounts have not been otherwise modified.  These purchased liabilities are included in accrued royalties and distribution fees in the accompanying consolidated balance sheets for 2014 and 2013.

RLJ SPAC Acquisition, LLC

Our chairman of our board of directors (Mr. Robert L. Johnson) through his company, RLJ SPAC Acquisition, LLC, has entered into a plan to purchase up to $2.0 million of our outstanding common stock from time to time over a 24-month period beginning June 19, 2013. Any purchases under the plan will be at the discretion of Lazard Capital Markets LLC in the open market or in privately negotiated transactions in compliance with applicable laws and regulations.

All $2.0 million of Common Stock may not be purchased during the 24-month period.  The Plan may be terminated by Mr. Johnson at any time.

During 2014 and 2013, RLJ SPAC Acquisition LLC purchased 128,665 and 232,531 shares, respectively.

NOTE 23. SUBSEQUENT EVENTS

On April 15, 2015, we sold to a company owned by Robert L. Johnson, the Company’s chairman, 15,000 shares of Bridge Preferred Stock for $15.0 million in cash.  The rights of the Bridge Preferred Stock include a preference on any dividends paid, limited voting rights related to any amendment to the Bridge Preferred Stock, a liquidation preference of $1,000 per share, negative covenants with respect to certain events and a redemption right at 130% of the liquidation preference upon certain defaults or a change in control.

The Company used $10.0 million of the net proceeds from this sale to make a partial payment on its Credit Agreement and approximately $1.0 million for prepayment penalties, legal fees and expenses associated with the transaction.  The balance of the net proceeds is intended to be used for working capital purposes.

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In connection with the sale of the Bridge Preferred Stock, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with  Mr. Johnson’s company.  Pursuant to the terms of the Purchase Agreement, if convertible preferred stock is issued to a third party within 60 days after the sale to Mr. Johnson’s company of the Bridge Preferred Stock, concurrently with the closing on the sale of convertible preferred stock to such third party, each holder of Bridge Preferred Stock is required to exchange its shares of Bridge Preferred Stock for the number of shares of convertible preferred stock that is equal in liquidation value to the purchase price paid by such holder for Bridge Preferred Stock and would receive the same rights and benefits as the other investors in the convertible preferred stock, including the issuance of warrants. If convertible preferred stock is not issued to a third party within 60 days after the sale to Mr. Johnson’s company of the Bridge Preferred Stock, promptly following such date, each holder of Bridge Preferred Stock is required to exchange its shares of Bridge Preferred Stock for the number of shares of convertible preferred stock that is equal in liquidation value to the purchase price paid by such holder for Bridge Preferred Stock pursuant to the terms of the last convertible preferred stock term sheet offered by the Company to a third party and would receive the same rights and benefits as set forth in such last term sheet, including the issuance of warrants. The conversion of such convertible preferred stock into, and the exercise of such warrants for, shares of the Company’s common stock would be subject to the approval of the stockholders of the Company.

The Company is currently seeking to complete a private placement of between $15 million and $30 million of preferred stock convertible into the Company’s common stock to selected institutional investors (including the contemplated exchange with Mr. Johnson’s company). Such convertible preferred stock  will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.  In connection with this placement, the Company has received a non-binding term sheet from a third party to purchase for cash $4,000,000 in liquidation value of convertible preferred stock and warrants to purchase common stock. The non-binding term sheet contemplates that the convertible preferred stock would:

Bear an 8% annual dividend, payable in kind for the first two years and thereafter payable quarterly in cash or freely-trading common stock, at the Company’s option. If common stock were used for the payment, it would be valued at 80% of the market price.

Be convertible into common stock at an initial conversion price of $1.00 per share, subject to anti-dilution adjustment.

Be subject to mandatory redemption on the fifth anniversary of the issuance date. The Company would be able to redeem with either cash or freely-tradable common stock. If common stock is used for the redemption, it would be valued at 80% of the market price.

The term sheet further contemplates the issuance of warrants to purchase an aggregate number of shares of common stock equal to 30% of the number of shares into which the convertible preferred stock is convertible on the date of issuance thereof. The Warrants would have a five year term and would have an exercise price of $1.50 per share, subject to anti-dilution adjustment. Investors in the convertible preferred stock also would receive certain other customary rights, including registration rights and anti-dilution protection.

The conversion of the convertible preferred stock into, and the exercise of the warrants for, shares of the Company’s common stock would be subject to the approval of the stockholders of the Company. The Company would hold a special meeting seeking stockholders approval no later than July 31, 2015. Prior to the closing on the issuance of the convertible preferred stock, the Company would be required to obtain proxies from directors, executive officers and greater than 5% stockholders holding at least 50% of the outstanding shares to vote in favor of the issuance of the convertible preferred stock and the warrants.

There is no assurance that the transaction set forth in the term sheet will be completed, that the terms of the actual issuance will not materially vary from the terms set forth in the term sheet or that the Company will be successful in obtaining other investors in the convertible preferred stock.

Debt Amendments

Concurrently with the sale of the Bridge Preferred Stock, the Company also entered into (a) an amendment (the “Senior Credit Facility Amendment”) to the Credit Agreement between the Company and its lenders, and (b) an amendment (the “Note Amendment”) with the holders of certain subordinated notes (the “Subordinated Note Holders”).

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The principal terms of the Credit Agreement Amendment are as follows:

(a) a waiver of certain Defaults (as defined in the Credit Agreement) and Events of Default (as defined in the Credit Agreement) caused by, or that would be caused by the breach of certain financial covenants under the senior Credit Agreement;

(b) amendments of the Credit Agreement (i) modifying the interest rate to equal LIBOR plus 10.64%, (ii) modifying certain financial statement and other reporting and lender communication requirements, (iii) changing the Fixed Charge Coverage Ratio (as defined in the Credit Agreement) threshold to 0.73:1.00 for the quarter ending March 31, 2015, and 0.63:1.00 for the quarter ending June 30, 2015, (iv) changing the Senior Leverage Ratio (as defined in the Credit Agreement) limit to 7.50:1.00 for the quarter ending March 31, 2015, and 6.92:1.00 for the quarter ending June 30, 2015, (v) changing the Total Leverage Ratio (as defined in the Credit Agreement) limit to 9:00:1:00 for the quarter ending March 31, 2015, and 8.95:1.00 for the quarter ending June 30, 2015, and (vi) changing the Minimum Cash Balance (as defined in the Credit Agreement) that the Company is required to maintain to $1 million; and

(c) the consent of the lenders to the issuance of the Bridge Preferred Stock and the convertible preferred stock, which is anticipated to be issued in exchange for the Bridge Preferred Stock, as well as the use of the proceeds from the issuance of the Bridge Preferred Stock and the convertible preferred stock (i) to pay $10 million of the amounts outstanding pursuant to the Credit Agreement, (ii) to pay certain fees and costs associated with the issuance of the Bridge Preferred Stock and the convertible preferred stock, and (iii) for working capital purposes.

The principal terms of the Note Amendment are as follows:

(a) an agreement by the Subordinated Note Holders to convert 50% of the outstanding balance under the subordinated notes into the convertible preferred stock with rights and preferences equal to those of the Bridge Preferred Stock;

(b) amendments to the subordinated notes (i) changing the interest rate payable from 12% to 1.5% per annum for the 24-month period commencing on January 1, 2015, and then 12% per annum thereafter; and (ii) specifying that 45% of the interest due will be payable in cash and the remainder of the accrued interest will be payable in the form of additional subordinated notes; and

(c) a waiver of any existing defaults and events of default.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (or Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  We periodically review the design and effectiveness of our disclosure controls and internal control over financial reporting.  We make modifications to improve the design and effectiveness of our disclosure controls and internal control structure, and may take other corrective action, if our reviews identify a need for such modifications or actions.

As of the end of the period covered by this Annual Report on Form 10-K for the year ended December 31, 2014 (or Annual Report), we evaluated, under the supervision and with the participation of our Chief Executive Officer, and Chief Financial Officer, the effectiveness of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of the end of the period cover by this Annual Report because of material weaknesses in our internal controls over financial reporting, relating to the review of content ultimates and the preparation and review of reconciliations, which we view as an integral part of our disclosure controls and procedures.

Internal Control Over Financial Reporting

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for our Company.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles.  Internal control over financial reporting includes policies and procedures that:

§ Concern the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

§ Provide reasonable assurance that (a) transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and (b) that our receipts and expenditures are being recorded and made only in accordance with management’s authorizations; and

§ Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Because of the inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting at December 31, 2014.  In conducting this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework– 1992 and identified material weaknesses in our internal control over financial reporting as of December 31, 2014 as defined in SEC Regulation S-X. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the material weaknesses described below, management concluded that, at December 31, 2014, our internal control over financial reporting was ineffective.

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Management has concluded that we failed to maintain an effective control environment and monitoring activities as a result of (1) an ineffective design of the process level controls associated with the review of content ultimates, which lead to errors in the amortization expense and related impairment of physical inventories, and (2) a failure to design or maintain effective process level controls over certain reconciliations and management review.  These failures did not result in a material adjustment to our financial statements taken as a whole.

In light of the material weaknesses, we performed additional procedures, including updating our content ultimates and recalculating the impairment of related physical inventories, to ensure that our financial results are not materially misstated.  Based upon these additional procedures, management believes that the financial statements included in this report fairly present in all material respects our Company’s financial position, results of operations and cash flows for the periods presented.

Plan for Remediation of Material Weakness

In order to remediate the material weaknesses described above and enhance our internal control over financial reporting, the Company, led by our Chief Financial Officer, is implementing and monitoring the following actions:

(a) We will institute procedures to improve communication between legal, operations and finance with respect to notification of expired, modified or terminated catalog content agreements to ensure they are properly evaluated within the ultimates.

(b) We have added staff to our financial reporting function to provide increased focus over content analysis and review.

(c) We will require documented review and sign-off of content ultimates by the Chief Accounting Officer and the Head of Business Affairs and Legal before processing  for posting in ledger.

(d) We will provide incremental staff training.

This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm pursuant to rules that permit us to provide only management's report in this Annual Report.

Changes in Internal Control Over Financial Reporting

Management determined that, as of December 31, 2014, changes were made to our internal control over financial reporting during the fiscal quarter then ended that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  During the fiscal quarter ended December 31, 2014, the Company had the following changes to the design or maintenance of our internal control over financial reporting:

a. The Company’s third-party US content distributor experienced a significant security breach in their operational IT infrastructure, which disrupted the distributor’s ability to provide the normal automated daily feeds of detailed sales, returns, inventory movement, receivables and other transactions to the Company from November 22, 2014 through March 2, 2015.  We received some manual partial data during disrupted period; however this change required us to create unplanned temporary manual processes that increased the time and complexity of review and forecasting.

b. During the fourth quarter, we had turnover in process roles impacting financial reporting, including the IT senior reporting analyst and the Manager of royalty reporting.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The additional information required by this Item will be included in our company’s proxy statement for its 2015 Annual Meeting of Stockholders.

We have a Code of Ethics and Business Conduct Policy that applies to all of our employees, including our principal executive officer and principal financial and principal accounting officer, and to our directors.  We have posted the Code of Ethics and Business Conduct Policy under the menu “Investors – Corporate Governance” on our website at www.rljentertainment.com.  If we waive any material portion of our Code of Ethics and Business Conduct Policy that applies to our principal executive officer, principal financial officer or principal accounting officer or amend the Code of Ethics and Business Conduct Policy (other than technical, administrative or other non-substantive amendments), we will disclose that fact on our website at www.rljentertainment.com within four business days.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item will be included in our company’s proxy statement for its 2015 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item will be included in our company’s proxy statement for its 2015 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item will be included in our company’s proxy statement for its 2015 Annual Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item will be included in our company’s proxy statement for its 2015 Annual Meeting of Stockholders.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS

(a)	The following documents are filed as a part of this report:		Page
	1.	Financial Statements.
		Reports of Independent Registered Public Accounting Firms	[53]
		Consolidated Balance Sheets as of December 31, 2014 and 2013	[55]
		Consolidated Statements of Operations for the years ended December 31, 2014 and 2013	[56]
		Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2014 and 2013	[57]
		Consolidated Statements Equity for the years ended December 31, 2014 and 2013	[58]
		Consolidated Statements of Cash Flows for the years ended December 31, 2014 and 2013	[59]
(b)	Exhibits.

2.1	Agreement and Plan of Merger, dated as of April 1, 2012, by and between RLJ Acquisition, Inc. and Image Entertainment, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
2.2	Stock Purchase Agreement, dated as of April 2, 2012, by and among RLJ Acquisition, Inc., Acorn Media Group, Inc., the Shareholders of Acorn Media Group, Inc. and Peter Edwards, as the Shareholder Representative (incorporated by reference to Exhibit 2.2 to the Registrant’s Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
2.3	Amendment No. 1 to Stock Purchase Agreement, dated as of October 3, 2012, by and among RLJ Acquisition, Inc., RLJ Entertainment, Inc., Acorn Media Group, Inc., the shareholders of Acorn Media Group, Inc. listed on attached Exhibit A, and Peter Edwards, as the Shareholder Representative (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
3.1	Amended and Restated Articles of Incorporation of RLJ Entertainment, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
3.2	Form of Bylaws of RLJ Entertainment, Inc. (incorporated by reference to Exhibit 3.2 to Registrant’s Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
4.1	Specimen Common Stock certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
4.2	Specimen Warrant certificate (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
4.3*	Amended and Restated Warrant Agreement, dated as of February 1, 2015, by and between RLJ Entertainment, Inc., Computershare Inc. and Computershare Trust Company, N.A.
10.1	Preferred Stock Purchase Agreement, dated as of April 1, 2012, by and between RLJ Acquisition, Inc. and the holders of the Series B Preferred Stock of Image Entertainment, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
10.2	Amendment No. 1 to Preferred Stock Purchase Agreement, dated as of October 3, 2012, by and among RLJ Acquisition, Inc., RLJ Entertainment, Inc., and the holders of the Preferred Stock of Image Entertainment, Inc. listed on Schedule A to the Preferred Stock Purchase Agreement, dated as of April 2, 2012, by and between RLJ Acquisition, Inc. and the holders of Series B Preferred Stock of Image Entertainment, Inc. (incorporated by reference to Exhibit 99.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).

98

10.3	Joinder Agreement, dated as of April 10, 2012, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc., Image Entertainment, Inc., Acorn Media Group, Inc., and Peter Edwards as the Shareholder Representative (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
10.4	RLE Entertainment, Inc. 2012 Incentive Compensation Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S‑4 (File No. 333-180714) filed on August 10, 2012).
10.5	Credit Agreement, dated as of October 3, 2012, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc., RLJ Merger Sub I, Inc., RLJ Merger Sub II, Inc., Acorn Media Group, Inc., and Image Entertainment, Inc., as the Borrowers, the Guarantors from time to time party thereto, the Lenders from time to time party thereto, and SunTrust Bank, as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.6	First Amendment to and Waiver Under Credit Agreement, dated as of June 28, 2013, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc., for itself and as successor by merger with RLJ Merger Sub I, Inc., Acorn Media Group, Inc., Image Entertainment, Inc., for itself and as successor by merger with RLJ Merger Sub II, Inc., each of the Persons party to the Credit Agreement as Guarantors, the Lenders party hereto, and SunTrust Bank, as the Administrative Agent (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35675) filed on August 5, 2013).
10.7	Second Amendment to and Waiver Under Credit Agreement, dated as of November 6, 2013, by and among RLJ Entertainment, Inc. RLJ Acquisition, Inc. for itself and as successor by merger with RLJ Merger Sub I, Inc., Acorn Media Group, Inc. Image Entertainment, Inc., for itself and as successor by merger with RLJ Merger Sub II, Inc., each of the Persons party to the Credit Agreement as Guarantors, the Lenders party hereto, and SunTrust Bank, as the Administrative Agent (incorporated by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K (File No. 001-35675) filed on March 19, 2014).
10.8	Third Amendment to and Waiver Under Credit Agreement, dated as of December 6, 2013, by and among RLJ Entertainment, Inc. RLJ Acquisition, Inc. for itself and as successor by merger with RLJ Merger Sub I, Inc., Acorn Media Group, Inc. Image Entertainment, Inc., for itself and as successor by merger with RLJ Merger Sub II, Inc., each of the Persons party to the Credit Agreement as Guarantors, the Lenders party hereto, and SunTrust Bank, as the Administrative Agent (incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K (File No. 001-35675) filed on March 19, 2014).
10.9	Pledge and Security Agreement, dated as of October 3, 2012, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc., RLJ Merger Sub I, Inc., RLJ Merger Sub II, Inc., Acorn Media Group, Inc., Image Entertainment, Inc., Image/Madacy Home Entertainment, LLC, and SunTrust Bank , as administrative agent on behalf of the Secured Parties (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.10	Amended and Restated Registration Rights Agreement, dated as of October 3, 2012, by and among RLJ Acquisition, Inc., RLJ Entertainment, Inc., JH Partners, LLC, JH Partners Evergreen Fund, LP, JH Investment Partners III, LP, JH Investment Partners GP Fund III, LLC, the shareholders of Acorn Media Group, Inc., Peter Edwards, as the Acorn Representative, RLJ SPAC Acquisition, LLC, William S. Cohen and Morris Goldfarb (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).

99

10.11	First Amendment to Amended and Restated Registration Rights Agreement, dated as of June 27, 2013, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc., RLJ SPAC Acquisition, LLC, JH Partners, LLC, JH Partners Evergreen Fund, L.P., JH Investment Partners III, L.P., JH Investment Partners GP Fund III, LLC, and Wexford Spectrum Investors, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35675) filed on August 5, 2013).
10.12	Form of Indemnity Agreement, by and between RLJ Entertainment and each Indemnitee (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.13	Assignment, Assumption and Amendment Agreement, dated as of October 3, 2012, by and among RLJ Entertainment, Inc., RLJ Acquisition, Inc. and Continental Stock Transfer & Trust Company (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.14	Form of Unsecured Subordinated Promissory Note (incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.15	Consulting Agreement, dated as of September 18, 2012, by and among RLJ Acquisition, Inc., RLJ Entertainment, Inc., and Wexford Spectrum Investors LLC (incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
10.16†	Separation Agreement, dated as of February 22, 2013, by and between Ted Green, Image Entertainment, Inc. and RLJ Entertainment, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35675) filed on May 15, 2013).
10.17†	Separation Agreement, dated as of May 24, 2013, by and between John Avagliano, Image Entertainment, Inc. and RLJ Entertainment, Inc. (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35675) filed on August 5, 2013).
10.18†	Employment Agreement, dated as of June 10, 2013, by and between Drew Wilson and RLJ Entertainment, Inc. (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35675) filed on August 5, 2013).
10.19†	Employment Agreement, dated as of July 18, 2013, by and between Miguel Penella and RLJ Entertainment, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35675) filed on November 7, 2013).
10.20†	Separation Agreement, dated as of April 23, 2013, by and between John Hyde, Image Entertainment, Inc. and RLJ Entertainment, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35675) filed on August 5, 2013).
10.21	Credit and Guaranty Agreement, dated as of September 11, 2014, by and among RLJ Entertainment, Inc., as Parent Borrower, and Subsidiaries of Parent Borrower, as Guarantors, the Lenders party hereto from time to time, McLarty Capital Partners SBIC, L.P., as Administrative Agent, Collateral Agent, Arranger, Bookmanager, and Syndication Agent, and Crystal Financial LLC as Documentation Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-35675) filed on November 7, 2014).
14.1	Code of Ethics (incorporated by reference to Exhibit 14.1 to the Registrant’s Current Report on Form 8-K (File No. 001-35675) filed on October 10, 2012).
21.1*	Subsidiaries of the Registrant.

100

23.1*	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
23.2*	Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.
31.1*	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2*	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1*	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer.
99.1	Agatha Christie Limited Audited Consolidated Financial Statements for the period ended December 31, 2013 and 2012 (incorporated by reference to Exhibit 99.4 to the Registrant’s Annual Report on Form 10-K (File No. 001-35675) filed on March 19, 2014).
99.2*	Agatha Christie Limited Audited Consolidated Financial Statements for the period ended December 31, 2014.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

† Management contract or compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	RLJ ENTERTAINMENT, INC.
	A Nevada corporation
Dated:  May 8, 2015	/s/ MIGUEL PENELLA
	MIGUEL PENELLA
	Chief Executive Officer
	(Principal Executive Officer)

Dated:  May 8, 2015	/s/ ANDREW S. WILSON
	ANDREW S. WILSON
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Dated:  May 8, 2015	/s/ MIGUEL PENELLA
	MIGUEL PENELLA
	Chief Executive Officer and Director
	(Principal Executive Officer)
Dated:  May 8, 2015	/s/ ANDREW S. WILSON
	ANDREW S. WILSON
	Chief Financial Officer
	(Principal Financial and Accounting Officer)
Dated:  May 8, 2015	/s/ ROBERT L. JOHNSON
	ROBERT L. JOHNSON
	Chairman of the Board
Dated:  May 8, 2015	/s/ PETER EDWARDS
	PETER EDWARDS
	Non-Executive Vice Chairman
Dated:  May 8, 2015	/s/ H. VAN SINCLAIR
	H. VAN SINCLAIR
	Director
Dated:  May 8, 2015	/s/ TYRONE BROWN
	TYRONE BROWN
	Director
Dated:  May 8, 2015	/s/ MORRIS GOLDFARB
	MORRIS GOLDFARB
	Director
Dated:  May 8, 2015	/s/ ANDOR M. LASZLO
	ANDOR M. LASZLO
	Director

102

SIGNATURES -  continued

Dated:  May 8, 2015	/s/ LISA W. WARDELL
	LISA W. WARDELL
	Director
Dated:  May 8, 2015	/s/ SCOTT R. ROYSTER
	SCOTT R. ROYSTER
	Director

103

EX-4.3

Exhibit 4.3

AMENDED AND RESTATED

WARRANT AGREEMENT

between

RLJ ENTERTAINMENT, INC.

and

COMPUTERSHARE INC. AND COMPUTERSHARE TRUST COMPANY, N.A.,

as Warrant Agent

Dated as of February 1, 2015

    THIS AMENDED AND RESTATED WARRANT AGREEMENT (this “Agreement”), dated as of February 1, 2015, is by and between RLJ Entertainment, Inc., a Nevada corporation (the “Company”), and Computershare Inc., a Delaware corporation (“Computershare”), and its wholly owned subsidiary, Computershare Trust Company, N.A., a federally chartered trust company (“Computershare Trust”). Computershare and Computershare Trust are collectively referred to in this Agreement as the Warrant Agent (the “Warrant Agent”).

WHEREAS, RLJ Acquisition, Inc. (“RLJ Acquisition”) entered into that certain Subscription Agreement, dated as of December 2, 2010 (the “Sponsor Warrants Purchase Agreement”), with RLJ SPAC Acquisition, LLC, a Delaware limited liability company (the “Sponsor”), an entity controlled by Robert L. Johnson, RLJ Acquisition’s Chairman of the Board of Directors (the “Founder”), pursuant to which the Sponsor purchased an aggregate of 6,666,667 warrants, bearing the legend set forth in Exhibit B hereto at a purchase price of $0.75 per warrant, in a private placement transaction occurring simultaneously with the closing of the Offering (as defined below) (collectively, the “Sponsor Warrants”); and

WHEREAS, RLJ Acquisition and the Sponsor were parties to that certain Contribution Agreement, dated October 3, 2012, pursuant to which the Sponsor contributed 2,850,000 Sponsor Warrants to RLJ Acquisition (which Sponsor Warrants were cancelled by RLJ Acquisition); and

WHEREAS, on February 22, 2010, RLJ Acquisition consummated an initial public offering (the “Offering”) of 14,375,000 units of equity securities, including units issued and sold pursuant to the underwriters’ over-allotment option, each such unit comprised of one share of RLJ Acquisition Common Stock (as defined below) and one Offering Warrant (as defined below) (the “Units”) and, in connection therewith, issued and delivered 14,375,000 warrants to public investors in the Offering (the “Offering Warrants”), each such Offering Warrant evidencing the right of the holder thereof to purchase one share of the common stock of RLJ Acquisition, par value $0.001 per share (the “RLJ Acquisition Common Stock”), for $12.00 per share, subject to adjustment as described herein; and

WHEREAS, RLJ Acquisition filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1, No. 333-170947 (the “Registration Statement”) and prospectus (the “Prospectus”), for the registration, under the Securities Act of 1933, as amended (the “Securities Act”), of the Units, the Offering Warrants and the RLJ Acquisition Common Stock included in the Units; and

WHEREAS, on October 3, 2012, the Company, RLJ Acquisition and the Continental Stock Transfer & Trust Company (the “Prior Warrant Agent”) entered into an Assignment, Assumption and Amendment Agreement (the “Warrant Assumption Agreement”), pursuant to which RLJ Acquisition assigned this Agreement to the Company and the Company assumed this Agreement from RLJ Acquisition; and

WHEREAS, RLJ Acquisition, the Company and Image Entertainment, Inc. (“Image”) were parties to that certain Agreement and Plan of Merger, dated as of April 2, 2012 (the “Merger Agreement”), which provided for the merger of RLJ Acquisition with and into RLJ Merger Sub I, Inc., a Nevada corporation and wholly owned subsidiary of the Company, pursuant to which, each share of RLJ Acquisition Common Stock was automatically converted into one newly issued share of common stock, par value $0.001 per share, of the Company (the “Common Stock”); and

WHEREAS, pursuant to the Merger Agreement, the Warrant Assumption Agreement and Section 4.4 of this Agreement, each Sponsor Warrant and each Offering Warrant were converted into the right to purchase one share of Common Stock of the Company rather than one share of RLJ Acquisition Common Stock; and

WHEREAS, RLJ Acquisition, the Company, Acorn Media Group, Inc. (“Acorn”) and the shareholders of Acorn were parties to that certain Stock Purchase Agreement, dated as of April 2, 2012, as amended, which provided, among other things, for the issuance of 1,150,000 warrants to purchase one share of Common Stock to the shareholders of Acorn on substantially the same terms as the Offering Warrants (the “Acorn Warrants”); and

WHEREAS, RLJ Acquisition, the Company, and the holders of preferred stock of Image were parties to that certain Preferred Stock Purchase Agreement, dated as of April 2, 2012, as amended, which provided, among other things, for the issuance of 150,000 warrants to purchase one share of Common Stock to the holders of preferred stock of Image on substantially the same terms as the Offering Warrants (the “Image Warrants”); and

WHEREAS, RLJ Acquisition, the Company and Wexford Spectrum Investors LLC (“Wexford”) were parties to that certain Consulting Agreement, dated as of September 18, 2012, which provided, among other things, for the issuance of 550,000 warrants to purchase one share of Common Stock to Wexford on substantially the same terms as the Offering Warrants (the “Wexford Warrants”); and

WHEREAS, the transactions contemplated by that certain Credit Agreement by and among the Company, as a Borrower, the other parties designated therein as Borrowers, the guarantors from time to time party thereto, the several banks and other financial institutions and Lenders from time to time party thereto, including Fortress Credit Corp. (“Fortress”), SunTrust, as Administrative Agent, Issuing Bank and a Lender, with SunTrust Robinson Humphrey, Inc. as Lead Arranger and Bookrunner, provided, among other things, for the issuance of 1,000,000 warrants to purchase one share of Common Stock to Fortress on substantially the same terms as the Offering Warrants (the “Fortress Warrants”); and

WHEREAS, the Sponsor Warrants, the Offering Warrants, the Acorn Warrants, the Image Warrants, the Wexford Warrants and the Fortress Warrants are referred to collectively as the “Warrants”; and

WHEREAS, the Company desires to replace the Prior Warrant Agent and to appoint the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer, exchange, redemption and exercise of the Warrants; and

WHEREAS, the Company desires to provide for the form and provisions of the Warrants, the terms upon which they shall be issued and exercised, and the respective rights, limitation of rights, and immunities of the Company, the Warrant Agent, and the holders of the Warrants; and

WHEREAS, the Company and the Warrant Agent desire to amend and restate the prior Warrant Agreement to reflect all prior amendments to the Agreement, to reflect the appointment of the Warrant Agent and to adopt certain further amendments to the Agreement; and

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WHEREAS, all acts and things have been done and performed which are necessary to make the Warrants, when executed on behalf of the Company and countersigned by or on behalf of the Warrant Agent, as provided herein, the valid, binding and legal obligations of the Company, and to authorize the execution and delivery of this Agreement.

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:

1.Appointment of Warrant Agent. The Company hereby appoints the Warrant Agent to act as agent for the Company for the Warrants, and the Warrant Agent hereby accepts such appointment and agrees to perform the same in accordance with the terms and conditions set forth in this Agreement.

2.Warrants.

2.1.Form of Warrant. Each Warrant shall be issued in registered form only and shall be in substantially the form of Exhibit A hereto, the provisions of which are incorporated herein and shall be signed by, or bear the facsimile signature of, the Chairman of the Board, President, Chief Executive Officer, Secretary or other principal officer of the Company and the manual or facsimile countersignature of an authorized officer of the Warrant Agent. In the event the person whose facsimile signature has been placed upon any Warrant shall have ceased to serve in the capacity in which such person signed the Warrant before such Warrant is issued, it may be issued with the same effect as if he or she had not ceased to be such at the date of issuance.

2.2.Effect of Countersignature. Unless and until countersigned by the Warrant Agent pursuant to this Agreement, a Warrant shall be invalid and of no effect and may not be exercised by the holder thereof.

2.3.Registration.

2.3.1.    Warrant Register. The Warrant Agent shall maintain books (the "Warrant Register"), for the registration of original issuance and the registration of transfer of the Warrants. Upon the initial issuance of the Warrants, the Warrant Agent shall issue and register the Warrants in the names of the respective holders thereof in such denominations and otherwise in accordance with instructions delivered to the Warrant Agent by the Company.

2.3.2.    Registered Holder. Prior to due presentment for registration of transfer of any Warrant, the Company and the Warrant Agent may deem and treat the person in whose name such Warrant is registered in the Warrant Register (the "Registered Holder") as the absolute owner of such Warrant and of each Warrant represented thereby (notwithstanding any notation of ownership or other writing on the Warrant Certificate (as defined below) made by anyone other than the Company or the Warrant Agent), for the purpose of any exercise thereof, and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary.

2.4.[Intentionally Omitted]

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2.5.Warrant Attributes.

2.5.1.    Sponsor Warrants. The Sponsor Warrants shall be identical to the Offering Warrants, except that so long as they are held by the Sponsor, the Founder or any of their Permitted Transferees (as defined below) the Sponsor Warrants: (i) may be exercised for cash or on a cashless basis, pursuant to subsection 3.3.1(c) hereof, (ii) may not be transferred, assigned or sold until thirty (30) days after the completion by the Company of an initial Business Combination (as defined below), and (iii) shall not be redeemable by the Company; provided, however, that in the case of (ii), the Sponsor Warrants and any shares of the Common Stock held by the Sponsor and issued upon exercise of the Sponsor Warrants may be transferred by the Sponsor: (a) to the Company's officers or directors, any affiliate or family member of any of the Company's officers or directors or any affiliate of the Sponsor or to any limited partner(s) of the Sponsor; (b) in the case of the Founder, by gift to a member of the Founder's immediate family or to a trust, the beneficiary of which is a member of the Founder's immediate family, an affiliate of the Founder or to a charitable organization; (c) in the case of the Founder, by virtue of the laws of descent and distribution upon death of the Founder; (d) in the case of the Founder, pursuant to a qualified domestic relations order; (e) by virtue of the laws of the state of Delaware or the Sponsor's limited liability agreement upon dissolution of the Sponsor; (f) in the event of the Company's liquidation prior to the completion of the Company's initial Business Combination; or (g) in the event that the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction that results in all of the holders of the Company's equity securities issued in the Offering having the right to exchange their shares of the Common Stock for cash, securities or other property subsequent to the consummation of the Company's initial Business Combination; provided, however, that, in the case of clauses (a) through (d), these transferees (the "Permitted Transferees") enter into a written agreement with the Company agreeing to be bound by the transfer restrictions in this Agreement.

3.Terms and Exercise of Warrants.

3.1.Warrant Price. Each Warrant shall, when countersigned by the Warrant Agent, entitle the Registered Holder thereof, subject to the provisions of such Warrant and of this Warrant Agreement, to purchase from the Company the number of shares of the Common Stock stated therein, at the price of $12.00 per share, subject to the adjustments provided in Section 4 hereof and in the last sentence of this Section 3.1. The term "Warrant Price" as used in this Warrant Agreement shall mean the price per share at which shares of the Common Stock may be purchased at the time a Warrant is exercised. The Company in its sole discretion may lower the Warrant Price at any time prior to the Expiration Date (as defined below) for a period of not less than twenty (20) Business Days, provided, that the Company shall provide at least twenty (20) days prior written notice of such reduction to Registered Holders of the Warrants and, provided further that any such reduction shall be identical among all of the Warrants.

3.2.Duration of Warrants. A Warrant may be exercised only during the period (the “Exercise Period”) commencing on the date that is thirty (30) days after the consummation of the transactions contemplated by the Merger Agreement (a “Business Combination”) and terminating at 5:00 p.m., New York City time on the earlier to occur of: (x) the date that is five (5) years after the date on which the Company completes the Business Combination, (y) the liquidation of the Company, or (z) other than with respect to the Sponsor Warrants, the Redemption Date (as defined below) as provided in Section 6.2 hereof (the “Expiration Date”); provided, however, that the exercise of any Warrant shall be subject to the satisfaction of any applicable conditions, as set forth in subsection 3.3.2 below with respect to an effective registration statement. Except with respect to the right to receive the Redemption Price (other than with respect to a Sponsor Warrant) in the event of a redemption (as set forth in Section 6 hereof), each Warrant (other than a Sponsor Warrant in the event of a redemption) not exercised on or before the Expiration Date shall become void, and all rights thereunder and all rights in respect thereof under this Agreement shall cease at 5:00 p.m. New York City time on the Expiration Date. The Company in its sole discretion may extend the duration of the Warrants by delaying the Expiration Date; provided, that the Company shall provide at least twenty (20) days prior written notice of any such extension to Registered Holders of the Warrants and to the Warrant Agent, and, provided further that any such extension shall be identical in duration among all the Warrants.

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3.3.Exercise of Warrants.

3.3.1.    Payment. Subject to the provisions of the Warrant and this Warrant Agreement, a Warrant, when countersigned by the Warrant Agent, may be exercised by the Registered Holder thereof by surrendering it, at the office of the Warrant Agent, or at the office of its successor as Warrant Agent, in the Borough of Manhattan, City and State of New York, with the subscription form, as set forth in the Warrant, duly executed, and by paying in full the Warrant Price for each full share of the Common Stock as to which the Warrant is exercised and any and all applicable taxes due in connection with the exercise of the Warrant, the exchange of the Warrant for the shares of the Common Stock and the issuance of such Common Stock, as follows:

 (a)in lawful money of the United States, in good certified check or good bank draft payable to the order of the Company;

 (b)in the event of a redemption pursuant to Section 6 hereof in which the Company's board of directors (the "Board") has elected to require all holders of the Warrants to exercise such Warrants on a "cashless basis," by surrendering the Warrants for that number of shares of the Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of the Common Stock underlying the Warrants, multiplied by the difference between the Warrant Price and the "Fair Market Value", as defined in this subsection 3.3.1(b) by (y) the Fair Market Value. Solely for purposes of this subsection 3.3.1(b) and Section 6.3, the "Fair Market Value" shall mean the average last sale price of the Common Stock for the ten (10) trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of the Warrants, pursuant to Section 6 hereof;

 (c)with respect to any Sponsor Warrant, so long as such Sponsor Warrant is held by the Sponsor or its Permitted Transferees, by surrendering the Warrants for that number of shares of the Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of the Common Stock underlying the Warrants, multiplied by the difference between the Warrant Price and the "Fair Market Value", as defined in this subsection 3.3.1(c), by (y) the Fair Market Value. Solely for purposes of this subsection 3.3.1(c), the "Fair Market Value" shall mean the average last sale price of the Common Stock for the ten (10) trading days ending on the third trading day prior to the date on which notice of exercise of the Warrant is sent to the Warrant Agent; or

 (d)as provided in Section 7.4 hereof.

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 (e)Upon receipt of a request to effect a cashless exercise, the Warrant Agent will promptly deliver a copy of the such request to the Company to confirm the number of Warrant Shares issuable in connection with the cashless exercise. The Company shall then calculate and transmit to the Warrant Agent, and the Warrant Agent shall have no obligation under this Warrant Agreement to calculate, confirm or verify the accuracy or the correctness of, the number of Warrant Shares issuable in connection with the cashless exercise.

3.3.2.    Issuance of Shares of Common Stock on Exercise. As soon as practicable after the exercise of any Warrant and the clearance of the funds in payment of the Warrant Price (if payment is pursuant to subsection 3.3.1(a)), the Company shall issue to the Registered Holder of such Warrant a certificate or certificates for the number of full shares of the Common Stock to which he, she or it is entitled, registered in such name or names as may be directed by him, her or it, and if such Warrant shall not have been exercised in full, a new countersigned Warrant for the number of shares as to which such Warrant shall not have been exercised. Notwithstanding the foregoing, the Company shall not be obligated to deliver any shares of the Common Stock pursuant to the exercise of a Warrant and shall have no obligation to settle such Warrant exercise unless (i) a registration statement under the Securities Act with respect to the shares of the Common Stock underlying the Offering Warrants is then effective and a prospectus relating thereto is current and (ii) the Company shall have provided the Warrant Agent with an opinion of counsel for the Company (which shall be an outside law firm with securities law experience) stating that the exercise of the Warrants has been registered under the Securities Act and the shares of the Common Stock issued upon such exercise shall be freely tradable under United States federal securities laws by anyone who is not an affiliate (as such term is defined in Rule 144 under the Securities Act) of the Company and, accordingly, shall not be required to bear a restrictive legend, subject to the Company's satisfying its obligations under Section 7.4. No Warrant shall be exercisable and the Company shall not be obligated to issue shares of the Common Stock upon exercise of a Warrant unless the Common Stock issuable upon such Warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the Registered Holder of the Warrants. In the event that the conditions in the two immediately preceding sentence are not satisfied with respect to a Warrant, the holder of such Warrant shall not be entitled to exercise such Warrant and such Warrant may have no value and expire worthless. In no event shall the Company be required to net cash settle any Warrant.

3.3.3.    Valid Issuance. All shares of the Common Stock issued or issuable upon the proper exercise of a Warrant in conformity with this Agreement shall be validly issued, fully paid and nonassessable.

3.3.4.    Date of Issuance. Each person in whose name any certificate for shares of the Common Stock is issued shall for all purposes be deemed to have become the holder of record of such shares of the Common Stock on the date on which the Warrant was surrendered and payment of the Warrant Price was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the share transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the share transfer books are open.

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3.3.5.    Maximum Percentage. A holder of a Warrant may notify the Company in writing in the event it elects to be subject to the provisions contained in this subsection 3.3.5: however, no holder of a Warrant shall be subject to this subsection 3.3.5 unless he, she or it makes such election, if the election is made by a holder, the Warrant Agent shall not effect the exercise of the holder's Warrant, and such holder shall not have the right to exercise such Warrant, to the extent that after giving effect to such exercise, such person (together with such person's affiliates), to the Warrant Agent's actual knowledge, would beneficially own in excess of 9.8% (the "Maximum Percentage") of the shares of the Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of the Common Stock beneficially owned by such person and its affiliates shall include the number of shares of the Common Stock issuable upon exercise of the Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of the Common Stock that would he issuable upon (x) exercise of the remaining, unexercised portion of the Warrant beneficially owned by such person and its affiliates and (y) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such person and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For purposes of the Warrant, in determining the number of outstanding shares of the Common Stock, the holder may rely on the number of outstanding shares of the Common Stock as reflected in (1) the Company's most recent Form 10-K, Form 10-Q, current report on Form 8-K or other public filing with the Commission as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or Continental Stock Transfer & Trust Company (the "Transfer Agent") setting forth the number of shares of the Common Stock outstanding. For any reason at any time, upon the written request of the holder of the Warrant, the Company shall, within two (2) Business Days, confirm orally and in writing to such holder the number of shares of the Common Stock then outstanding. In any case, the number of outstanding shares of the Common Stock shall be determined after giving effect to the conversion or exercise of equity securities of the Company by the holder and its affiliates since the date as of which such number of outstanding shares of the Common Stock was reported. By written notice to the Company, the holder of a Warrant may from time to time increase or decrease the Maximum Percentage applicable to such holder to any other percentage specified in such notice; provided, however, that any such increase shall not be effective until the sixty-first (61^st) day after such notice is delivered to the Company.

4.Adjustments.

   4.1Stock Dividends.

4.1.1.    Split-Ups. If after the date hereof, and subject to the provisions of Section 4.6 below, the number of outstanding shares of the Common Stock is increased by a stock dividend payable in shares of the Common Stock, or by a split-up of shares of the Common Stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number of shares of the Common Stock issuable on exercise of each Warrant shall be increased in proportion to such increase in the outstanding shares of the Common Stock. A rights offering to holders of the Common Stock entitling holders to purchase shares of the Common Stock at a price less than the "Fair Market Value" (as defined below) shall be deemed a stock dividend of a number of shares of the Common Stock equal to the product of (i) the number of shares of the Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for the Common Stock) multiplied by (ii) the quotient of (x) the price per share of the Common Stock paid in such rights offering divided by (y) the Fair Market Value. For purposes of this subsection 4.1.1, (i) if the rights offering is for securities convertible into or exercisable for the Common Stock, in determining the price payable for the Common Stock, there shall be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) "Fair Market Value" means the volume weighted average price of the Common Stock as reported during the ten (10) trading day period ending on the trading day prior to the first date on which the shares of the Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.

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4.1.2.    Extraordinary Dividends. If the Company, at any time while the Warrants are outstanding and unexpired, shall pay a dividend or make a distribution in cash, securities or other assets to the holders of the Common Stock on account of such shares of Common Stock (or other shares of the Company's capital stock into which the Warrants are convertible), other than (a) as described in subsection 4.1.1 above, (b) Ordinary Cash Dividends (as defined below), (c) to satisfy the redemption rights of the holders of the Common Stock in connection with a proposed initial Business Combination, (d) as a result of the repurchase of shares of Common Stock by the Company if a proposed initial Business Combination is presented to the stockholders of the Company for approval or (e) in connection with the Company's liquidation and the distribution of its assets upon its failure to consummate a Business Combination (any such non-excluded event being referred to herein as an "Extraordinary Dividend"), then the Warrant Price shall be decreased, effective immediately after the effective date of such Extraordinary Dividend, by the amount of cash and/or the fair market value (as determined by the Board, in good faith) of any securities or other assets paid on each share of the Common Stock in respect of such Extraordinary Dividend. For purposes of this subsection 4.1.2, "Ordinary Cash Dividends" means any cash dividend or cash distribution which, when combined on a per share of the Common Stock basis, with the per share amounts of all other cash dividends and cash distributions paid on the Common Stock during the 365-day period ending on the date of declaration of such dividend or distribution (as adjusted to appropriately reflect any of the events referred to in other subsections of this Section 4 and excluding cash dividends or cash distributions that resulted in an adjustment to the Warrant Price or to the number of shares of the Common Stock issuable on exercise of each Warrant) does not exceed $0.50 (being 5% of the offering price of the Units in the Company's Offering).

    4.2.Aggregation of Shares. If after the date hereof, and subject to the provisions of Section 4.6 hereof, the number of outstanding shares of the Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of the Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of the Common Stock issuable on exercise of each Warrant shall be decreased in proportion to such decrease in outstanding shares of Common Stock.

4.3.Adjustments in Exercise Price. Whenever the number of shares of the Common Stock purchasable upon the exercise of the Warrants is adjusted, as provided in subsection 4.1.1  or 4.2 above, the Warrant Price shall be adjusted (to the nearest cent) by multiplying such Warrant Price immediately prior to such adjustment by a fraction (x) the numerator of which shall be the number of shares of the Common Stock purchasable upon the exercise of the Warrants immediately prior to such adjustment, and (y) the denominator of which shall be the number of shares of the Common Stock so purchasable immediately thereafter.

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(a) The number of Common Shares issuable upon the exercise of Warrants may be subject to adjustment from time to time upon the occurrence of certain events as set forth in subsections 4.1.1  or 4.2 above (any such circumstance set forth therein being an “Adjustment Events”). The Company hereby agrees that it will provide the Warrant Agent with reasonable notice of Adjustment Events. The Company further agrees that it will provide to the Warrant Agent with any new or amended exercise terms.

(b) The Warrant Agent shall have no obligation under any Section of this Agreement to determine whether an Adjustment Event has occurred or to calculate any of the adjustments set forth herein.

4.4.Replacement of Securities upon Reorganization, etc. In case of any reclassification or reorganization of the outstanding shares of the Common Stock (other than a change under subsections 4.1.1 or 4.1.2 or Section 4.2 hereof or that solely affects the par value of such shares of the Common Stock), or in the case of any merger or consolidation of the Company with or into another corporation (other than a consolidation or merger in which the Company is the continuing corporation and that does not result in any reclassification or reorganization of the outstanding shares of the Common Stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of the Company as an entirety or substantially as an entirety in connection with which the Company is dissolved, the holders of the Warrants shall thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Warrants and in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the Warrants would have received if such holder had exercised his, her or its Warrant(s) immediately prior to such event (the "Alternative Issuance"); provided, however, that (i) if the holders of the Common Stock were entitled to exercise a right of election as to the kind or amount of securities, cash or other assets receivable upon such consolidation or merger, then the kind and amount of securities, cash or other assets constituting the Alternative Issuance for which each Warrant shall become exercisable shall be deemed to be the weighted average of the kind and amount received per share by the holders of the Common Stock in such consolidation or merger that affirmatively make such election, and (ii) if a tender, exchange or redemption offer shall have been made to and accepted by the holders of the Common Stock (other than a tender, exchange or redemption offer made by the Company in connection with redemption rights held by stockholders of the Company as provided for in the Company's certificate of incorporation or as a result of the repurchase of shares of Common Stock by the Company if a proposed initial Business Combination is presented to the stockholders of the Company for approval) under circumstances in which, upon completion of such tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding shares of the Common Stock, the holder of a Warrant shall be entitled to receive as the Alternative Issuance, the highest amount of cash, securities or other property to which such holder would actually have been entitled as a stockholder if such Warrant holder had exercised the Warrant prior to the expiration of such tender or exchange offer, accepted such offer and all of the Common Stock held by such holder had been purchased pursuant to such tender or exchange offer, subject to adjustments (from and after the consummation of such tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in this Section 4; provided further, however, that if more than 30% of the consideration receivable by the holders of the Common Stock in the applicable event is payable in the form of common stock in the successor entity that is not listed for trading on a national securities exchange or on the OTC Bulletin Board, or is not to be so listed for trading immediately following such event, then the Warrant Price shall be reduced by an amount (in dollars) equal to the quotient of (x) $18 (subject to adjustment in accordance with Section 6.1 hereof) minus the Per Share Consideration (as defined below) (but in no event, less than zero), and (y): if the applicable event is announced on or prior to the third anniversary of the closing date of the initial Business Combination, 2; if the applicable event is announced after the third anniversary of the closing date of the initial Business Combination and on or prior to the fourth anniversary of the closing date of the initial Business Combination, 2.5; if the applicable event is announced after the fourth anniversary of the closing date of the initial Business Combination and on or prior to the Expiration Date, 3. "Per Share Consideration" means (i) if the consideration paid to holders of the Common Stock consists exclusively of cash, the amount of such cash per share of the Common Stock, and (ii) in all other cases, the volume weighted average price of the Common Stock as reported during the ten (10) trading day period ending on the trading day prior to the effective date of the applicable event. If any reclassification or reorganization also results in a change in shares of the Common Stock covered by subsection  4.1.1, then such adjustment shall be made pursuant to subsection 4.1.1 or Sections 4.2, 4.3 and this Section 4.4. The provisions of this Section 4.4 shall similarly apply to successive reclassifications, reorganizations, mergers or consolidations, sales or other transfers.

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4.5.Notices of Changes in Warrant. Upon every adjustment of the Warrant Price or the number of shares issuable upon exercise of a Warrant, the Company shall give written notice thereof to the Warrant Agent, which notice shall state the Warrant Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Upon the occurrence of any event specified in Sections 4.1, 4.2, 4.3 or 4.4, the Company shall give written notice of the occurrence of such event to each holder of a Warrant, at the last address set forth for such holder in the Warrant Register, of the record date or the effective date of the event. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event.

4.6.No Fractional Shares. Notwithstanding any provision contained in this Warrant Agreement to the contrary, the Company shall not issue fractional shares upon exercise of Warrants. If, by reason of any adjustment made pursuant to this Section 4, the holder of any Warrant would be entitled, upon the exercise of such Warrant, to receive a fractional interest in a share, the Company shall, upon such exercise, round up to the nearest whole number, the number of the shares of the Common Stock to be issued to such holder.

4.7.Form of Warrant. The form of Warrant need not be changed because of any adjustment pursuant to this Section 4, and Warrants issued after such adjustment may state the same Warrant Price and the same number of shares as is stated in the Warrants initially issued pursuant to this Agreement; provided, however, that the Company may at any time in its sole discretion make any change in the form of Warrant that the Company may deem appropriate and that does not affect the substance thereof, and any Warrant thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant or otherwise, may be in the form as so changed.

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4.8.Other Events. In case any event shall occur affecting the Company as to which none of the provisions of preceding subsections of this Section 4 are strictly applicable, but which would require an adjustment to the terms of the Warrants in order to (i) avoid an adverse impact on the Warrants and (ii) effectuate the intent and purpose of this Section 4, then, in each such case, the Company shall appoint a firm of independent public accountants, investment banking or other appraisal firm of recognized national standing, which shall give its opinion as to whether or not any adjustment to the rights represented by the Warrants is necessary to effectuate the intent and purpose of this Section 4 and, if they determine that an adjustment is necessary, the terms of such adjustment. The Company shall adjust the terms of the Warrants in a manner that is consistent with any adjustment recommended in such opinion.

5.Transfer and Exchange of Warrants.

5.1.Registration of Transfer. The Warrant Agent shall register the transfer, from time to time, of any outstanding Warrant upon the Warrant Register, upon surrender of such Warrant for transfer, properly endorsed, with any evidence of authority that may be required by the Warrant Agent, including but not limited to, a signature guarantee from an eligible guarantor institution participating in a signature guarantee program approved by the Securities Transfer Association, and accompanied by appropriate instructions for transfer. Upon any such transfer, a new Warrant representing an equal aggregate number of Warrants shall be issued and the old Warrant shall be cancelled by the Warrant Agent. The Warrants so cancelled shall be delivered by the Warrant Agent to the Company from time to time upon request.

5.2.Procedure for Surrender of Warrants. Warrants may be surrendered to the Warrant Agent, together with a written request for exchange or transfer, and thereupon the Warrant Agent shall issue in exchange therefor one or more new Warrants as requested by the Registered Holder of the Warrants so surrendered, representing an equal aggregate number of Warrants; provided, however, that in the event that a Warrant surrendered for transfer bears a restrictive legend (as in the case of the Sponsor Warrants), the Warrant Agent shall not cancel such Warrant and issue new Warrants in exchange thereof until the Warrant Agent has received an opinion of counsel for the Company stating that such transfer may be made and indicating whether the new Warrants must also bear a restrictive legend.

5.3.Fractional Warrants. The Warrant Agent shall not be required to effect any registration of transfer or exchange which shall result in the issuance of a warrant certificate for a fraction of a warrant.

5.4.Service Charges: No service charge shall be made for any exchange or registration of transfer of Warrants.

5.5.Warrant Execution and Countersignature. The Warrant Agent is hereby authorized to countersign and to deliver, in accordance with the terms of this Agreement, the Warrants required to be issued pursuant to the provisions of this Section 5, and the Company, whenever required by the Warrant Agent, shall supply the Warrant Agent with Warrants duly executed on behalf of the Company for such purpose.

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6.Redemption.

6.1.Redemption. Subject to Section 6.4 hereof, not less than all of the outstanding Warrants may be redeemed, at the option of the Company, at any time while they are exercisable and prior to their expiration, at the office of the Warrant Agent, upon notice to the Registered Holders of the Warrants, as described in Section 6.2 below, at the price of $0.01 per Warrant (the "Redemption Price"), provided that the last sales price of the Common Stock reported has been at least $17.50 per share (subject to adjustment in compliance with Section 4 hereof), on each of any twenty (20) trading days within the thirty (30) trading-day period ending on the third Business Day prior to the date on which notice of the redemption is given and provided that there is an effective registration statement covering the shares of Common Stock issuable upon exercise of the Warrants, and a current prospectus relating thereto, available throughout the 30-day Redemption Period (as defined in Section 6.2 below).

6.2.Date Fixed for,  and Notice of, Redemption. In the event that the Company elects to redeem all of the Warrants, the Company shall fix a date for the redemption (the "Redemption Date"). Notice of redemption shall be mailed by first class mail, postage prepaid, by the Company not less than thirty (30) days prior to the Redemption Date to the Registered Holders of the Warrants to be redeemed at their last addresses as they shall appear on the registration books. Any notice mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Registered Holder received such notice.

6.3.Exercise After Notice of Redemption. The Warrants may be exercised, for cash (or on a "cashless basis" in accordance with subsection 3.3.1(b) of this Agreement) at any time after notice of redemption shall have been given by the Company pursuant to Section 6.2 hereof and prior to the Redemption Date. In the event that the Company determines to require all holders of Warrants to exercise their Warrants on a "cashless basis" pursuant to subsection 3.3.1, the notice of redemption shall contain the information necessary to calculate the number of shares of the Common Stock to be received upon exercise of the Warrants, including the "Fair Market Value" (as such term is defined in subsection 3.3.1(b) hereof) in such case. On and after the Redemption Date, the record holder of the Warrants shall have no further rights except to receive, upon surrender of the Warrants, the Redemption Price.

6.4.Exclusion of Sponsor Warrants. The Company agrees that the redemption rights provided in this Section 6 shall not apply to the Sponsor Warrants if at the time of the redemption such Sponsor Warrants continue to be held by the Sponsor or its Permitted Transferees. However, once such Sponsor Warrants are transferred (other than to Permitted Transferees under subsection 2.5.1), the Company may redeem the Sponsor Warrants, provided that the criteria for redemption are met, including the opportunity of the holder of such Sponsor Warrants to exercise the Sponsor Warrants prior to redemption pursuant to Section 6.3. Sponsor Warrants that are transferred to persons other than Permitted Transferees shall upon such transfer cease to be Sponsor Warrants and shall become Offering Warrants under this Agreement.

7.Other Provisions Relating to Rights of Holders of Warrants.

7.1.No Rights as Stockholder. A Warrant does not entitle the Registered Holder thereof to any of the rights of a stockholder of the Company, including, without limitation, the right to receive dividends, or other distributions, exercise any preemptive rights to vote or to consent or to receive notice as stockholders in respect of the meetings of stockholders or the election of directors of the Company or any other matter.

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7.2.Lost, Stolen, Mutilated. or Destroyed Warrants. If any Warrant is lost, stolen, mutilated, or destroyed, the Company and the Warrant Agent may on such terms as to indemnity or otherwise as they may in their discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination, tenor, and date as the Warrant so lost, stolen, mutilated, or destroyed. The Warrant Agent shall issue replacement Warrants in a form mutually agreed to by Warrant Agent and the Company for those certificates alleged to have been lost, stolen or destroyed, upon receipt by Warrant Agent of an open penalty surety bond satisfactory to it and holding it and Company harmless, absent notice to the Warrant Agent that such certificates have been acquired by a bona fide purchaser. The Warrant Agent may, at its option, issue replacement Warrants for mutilated certificates upon presentation thereof without such indemnity. Any such new Warrant shall constitute a substitute contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated, or destroyed Warrant shall be at any time enforceable by anyone.

7.3.Reservation of the Common Stock. The Company shall at all times reserve and keep available a number of its authorized but unissued shares of the Common Stock that shall be sufficient to permit the exercise in full of all outstanding Warrants issued pursuant to this Agreement.

7.4.Registration of the Common Stock. The Company agrees that as soon as practicable, but in no event later than fifteen (15) Business Days after the closing of its initial Business Combination, it shall use its best efforts to file with the Commission a post-effective amendment to the Registration Statement, or a new registration statement, for the registration, under the Securities Act, of the shares of the Common Stock issuable upon exercise of the Warrants, and it shall use its best efforts to take such action as is necessary to qualify for sale, in those states in which the Warrants were initially offered by the Company, the shares of the Common Stock issuable upon exercise of the Warrants. The Company shall use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the Warrants in accordance with the provisions of this Agreement. If any such post-effective amendment or registration statement has not been declared effective by the 60^th Business Day following the closing of the Business Combination, holders of the Warrants shall have the right, during the period beginning on the 61^st Business Day after the closing of the Business Combination and ending upon such post-effective amendment or registration statement being declared effective by the Commission, and during any other period when the Company shall fail to have maintained an effective registration statement covering the shares of Common Stock issuable upon exercise of the Warrants, to exercise such Warrants on a "cashless basis," by exchanging the Warrants (in accordance with Section 3(a)(9) of the Act or another exemption) for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of the Common Stock underlying the Warrants, multiplied by the difference between the Warrant Price and the "Fair Market Value" (as defined below) by (y) the Fair Market Value. Solely for purposes of this Section 7.4, "Fair Market Value" shall mean the volume weighted average price of the Common Stock as reported during the ten (10) trading day period ending on the trading day prior to the date that notice of exercise is received by the Warrant Agent from the holder of such Warrants or its securities broker or intermediary. The date that notice of cashless exercise is received by the Warrant Agent shall be conclusively determined by the Warrant Agent. The Company shall provide the Warrant Agent with an opinion of counsel for the Company (which shall be an outside law firm with securities law experience) stating that (i) the exercise of the Warrants on a cashless basis in accordance with this Section 7.4 is not required to be registered under the Securities Act and (ii) the shares of the Common Stock issued upon such exercise shall be freely tradable under United States federal securities laws by anyone who is not an affiliate (as such term is defined in Rule 144 under the Securities Act) of the Company and, accordingly, shall not be required to bear a restrictive legend. For the avoidance of any doubt, unless and until all of the Warrants have been exercised on a cashless basis, the Company shall continue to be obligated to comply with its registration obligations under the first three sentences of this Section 7.4. In addition, the Company agrees to use its best efforts to register the shares of the Common Stock issuable upon exercise of a Warrant under the blue sky laws of the states of residence of the exercising Warrant holder to the extent an exemption is not available.

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8.Concerning the Warrant Agent and Other Matters.

8.1.Payment of Taxes. The Company shall from time to time promptly pay all taxes and charges that may be imposed upon the Company or the Warrant Agent in respect of the issuance or delivery of shares of the Common Stock upon the exercise of the Warrants, but the Company shall not be obligated to pay any transfer taxes in respect of the Warrants or such shares.

8.2.Resignation, Consolidation, or Merger of Warrant Agent.

8.2.1.    Appointment of Successor Warrant Agent. The Warrant Agent, or any successor to it hereafter appointed, may resign its duties and be discharged from all further duties and liabilities hereunder after giving sixty (60) days' notice in writing to the Company. If the office of the Warrant Agent becomes vacant by resignation or incapacity to act or otherwise, the Company shall appoint in writing a successor Warrant Agent in place of the Warrant Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after it has been notified in writing of such resignation or incapacity by the Warrant Agent or by the holder of a Warrant (who shall, with such notice, submit his Warrant for inspection by the Company), then the holder of any Warrant may apply to the Supreme Court of the State of New York for the County of New York for the appointment of a successor Warrant Agent at the Company's cost. Any successor Warrant Agent, whether appointed by the Company or by such court, shall be a corporation organized and existing under the laws of the State of New York, in good standing and having its principal office in the Borough of Manhattan, City and State of New York, and authorized under such laws to exercise corporate trust powers and subject to supervision or examination by federal or state authority. After appointment, any successor Warrant Agent shall be vested with all the authority, powers, rights, immunities, duties, and obligations of its predecessor Warrant Agent with like effect as if originally named as Warrant Agent hereunder, without any further act or deed; but if for any reason it becomes necessary or appropriate, the predecessor Warrant Agent shall execute and deliver, at the expense of the Company, an instrument transferring to such successor Warrant Agent all the authority, powers, and rights of such predecessor Warrant Agent hereunder; and upon request of any successor Warrant Agent the Company shall make, execute, acknowledge, and deliver any and all instruments in writing for more fully and effectually vesting in and confirming to such successor Warrant Agent all such authority, powers, rights, immunities, duties, and obligations.

8.2.2.    Notice of Successor Warrant Agent. In the event a successor Warrant Agent shall be appointed, the Company shall give notice thereof to the predecessor Warrant Agent and the Transfer Agent for the Common Stock not later than the effective date of any such appointment.

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8.2.3.    Merger or Consolidation of Warrant Agent. Any corporation into which the Warrant Agent may be merged or with which it may be consolidated or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party shall be the successor Warrant Agent under this Agreement without any further act.

 8.3.Fees and Expenses of Warrant Agent.

8.3.1.    Remuneration. The Company agrees to pay the Warrant Agent reasonable remuneration for its services as such Warrant Agent hereunder and shall, pursuant to its obligations under this Agreement, reimburse the Warrant Agent upon demand for all expenditures that the Warrant Agent may reasonably incur in the execution of its duties hereunder.

8.3.2.    Further Assurances. The Company agrees to perform, execute, acknowledge, and deliver or cause to be performed, executed, acknowledged, and delivered all such further and other acts, instruments, and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing of the provisions of this Agreement.

 8.4.Liability of Warrant Agent.

8.4.1.    Reliance on Company Statement. Whenever in the performance of its duties under this Warrant Agreement, the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a statement signed by the President or Chairman of the Board of the Company and delivered to the Warrant Agent. The Warrant Agent may rely upon such statement for any action taken or suffered in good faith by it pursuant to the provisions of this Agreement.

8.4.2.    Indemnity. The Warrant Agent shall be liable hereunder only for its own gross negligence, recklessness, bad faith, willful misconduct or fraud. The Company covenants and agrees to indemnify and to hold the Warrant Agent harmless against any costs, expenses (including reasonable fees of its legal counsel), losses or damages, which may be paid, incurred or suffered by or to which it may become subject, arising from or out of, directly or indirectly, any claims or liability resulting from its actions as Warrant Agent pursuant hereto; provided, that such covenant and agreement does not extend to, and the Warrant Agent shall not be indemnified with respect to, such costs, expenses, losses and damages incurred or suffered by the Warrant Agent as a result of, or arising out of, its gross negligence, recklessness, bad faith, willful misconduct or fraud. Notwithstanding anything contained herein to the contrary, except for Warrant Agent’s bad faith, willful misconduct, recklessness, or fraud, the Warrant Agent’s aggregate liability during any term of this Agreement with respect to, arising from, or arising in connection with this Agreement, or from all Services provided or omitted to be provided under this Agreement, whether in contract, or in tort, or otherwise, is limited to, and shall not exceed, the amounts paid hereunder by the Company to Warrant Agent as fees and charges, but not including reimbursable expenses, during the twelve (12) months immediately preceding the event for which recovery from Warrant Agent is being sought.

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8.4.3     Instructions. From time to time, the Company may provide the Warrant Agent with instructions concerning the services performed by the Warrant Agent hereunder.  In addition, at any time the Warrant Agent may apply to any officer of the Company for instruction, and may consult with legal counsel for the Warrant Agent or the Company with respect to any matter arising in connection with the services to be performed by the Warrant Agent under this Agreement.  The Warrant Agent and its agents and subcontractors shall not be liable and shall be indemnified by the Company for any action taken or omitted by the Warrant Agent in reliance upon any Company instructions or upon the advice or opinion of such counsel.  The Warrant Agent shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Company.

8.4.4.    Exclusions. The Warrant Agent shall have no responsibility with respect to the validity of this Agreement or with respect to the validity or execution of any Warrant (except its countersignature thereof). The Warrant Agent shall not be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Warrant. The Warrant Agent shall not be responsible to make any adjustments required under the provisions of Section 4 hereof or responsible for the manner, method, or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of the Common Stock to be issued pursuant to this Agreement or any Warrant or as to whether any shares of the Common Stock shall, when issued, be valid and fully paid and nonassessable.

8.5.Acceptance of Agency. The Warrant Agent hereby accepts the agency established by this Agreement and agrees to perform the same upon the terms and conditions herein set forth and among other things, shall account promptly to the Company with respect to Warrants exercised and concurrently account for, and pay to the Company, all monies received by the Warrant Agent for the purchase of shares of the Common Stock through the exercise of the Warrants.

8.6.Waiver. The Warrant Agent has no right of set-off or any other right, title, interest or claim of any kind ("Claim") in, or to any distribution of, the Trust Account (as defined in that certain Investment Management Trust Agreement, dated as of the date hereof, by and between the Company and the Warrant Agent as trustee thereunder) and hereby agrees not to seek recourse, reimbursement, payment or satisfaction for any Claim against the Trust Account for any reason whatsoever. The Warrant Agent hereby waives any and all Claims against the Trust Account and any and all rights to seek access to the Trust Account.

8.7Bank Accounts.  All funds received by Computershare under this Agreement that are to be distributed or applied by Computershare in the performance of services under this Agreement (the “Funds”) shall be held by Computershare as agent for the Company and deposited in one or more bank accounts to be maintained by Computershare in its name as agent for the Company.  Until paid pursuant to the terms of this Agreement, Computershare will hold the Funds through such accounts in: deposit accounts of commercial banks with Tier 1 capital exceeding $1 billion or with an average rating above investment grade by S&P (LT Local Issuer Credit Rating), Moody’s (Long Term Rating) and Fitch Ratings, Inc. (LT Issuer Default Rating) (each as reported by Bloomberg Finance L.P.).  Computershare shall have no responsibility or liability for any diminution of the Funds that may result from any deposit made by Computershare in accordance with this paragraph, including any losses resulting from a default by any bank, financial institution or other third party.  Computershare may from time to time receive interest, dividends or other earnings in connection with such deposits.  Computershare shall not be obligated to pay such interest, dividends or earnings to the Company, any holder or any other party.

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8.8Delivery of Exercise Price.  Unless otherwise agreed with respect to a particular transaction,  Warrant Agent shall forward funds received for Warrant exercises in a given month by the fifth business day of the following transaction by wire transfer to an account designated by the Company.

9.Miscellaneous Provisions.

9.1.Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns.

9.2.Notices. Any notice, statement or demand authorized by this Warrant Agreement to be given or made by the Warrant Agent or by the holder of any Warrant to or on the Company shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five (5) days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Company with the Warrant Agent), as follows:

RLJ Entertainment, Inc.

8515 Georgia Ave., Suite 650

Silver Spring, Maryland 20910

Attention: Chief Executive Officer

Any notice, statement or demand authorized by this Agreement to be given or made by the holder of any Warrant or by the Company to or on the Warrant Agent shall be sufficiently given when so delivered if by hand or overnight delivery or if sent by certified mail or private courier service within five (5) days after deposit of such notice, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company), as follows:

Computershare Inc.

250 Royall Street

Canton, MA  02021

Attn:  General Counsel

9.3.Applicable  Law. The validity, interpretation, and performance of this Agreement and of the Warrants shall be governed in all respects by the laws of the State of New York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction. The Company hereby agrees that any action, proceeding or claim against it arising out of or relating in any way to this Agreement shall be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum.

9.4.Persons Having Rights under this Agreement. Nothing in this Agreement shall be construed to confer upon, or give to, any person or corporation other than the parties hereto and the Registered Holders of the Warrants any right, remedy, or claim under or by reason of this Warrant Agreement or of any covenant, condition, stipulation, promise, or agreement hereof All covenants, conditions, stipulations, promises, and agreements contained in this Warrant Agreement shall be for the sole and exclusive benefit of the parties hereto and their successors and assigns and of the Registered Holders of the Warrants.

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9.5.Examination of the Warrant Agreement. A copy of this Agreement shall be available at all reasonable times at the office of the Warrant Agent in the Borough of Manhattan, City and State of New York, for inspection by the Registered Holder of any Warrant. The Warrant Agent may require any such holder to submit his Warrant for inspection by it.

9.6.Counterparts. This Agreement may be executed in any number of original or facsimile counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.  A signature to this Agreement transmitted electronically shall have the same authority, effect and enforceability as an original signature.

9.7.Effect of Headings. The section headings herein are for convenience only and are not part of this Warrant Agreement and shall not affect the interpretation thereof.

9.8.Amendments. This Agreement may be amended by the parties hereto without the consent of any Registered Holder for the purpose of curing any ambiguity, or curing, correcting or supplementing any defective provision contained herein or adding or changing any other provisions with respect to matters or questions arising under this Agreement as the parties may deem necessary or desirable and that the parties deem shall not adversely affect the interest of the Registered Holders. All other modifications or amendments, including any amendment to increase the Warrant Price or shorten the Exercise Period and any amendment to the terms of only the Sponsor Warrants, shall require the written consent of the Registered Holders of 65% of the then outstanding Offering Warrants. Further, the Sponsor shall not vote any Warrants owned or controlled by it in favor of such amendment unless the Registered Holders of 65% of the Offering Warrants vote in favor of such amendment. Notwithstanding the foregoing, the Company may lower the Warrant Price or extend the duration of the Exercise Period pursuant to Sections 3.1 and 3.2, respectively, without the consent of the Registered Holders.  As a condition precedent to the Warrant Agent’s execution of any amendment, the Company shall deliver to the Warrant Agent a certificate form a duly authorized officer of the Company that states that the proposed amendment is in compliance with the terms of this Section 9.8.

9.9.Confidentiality. The Warrant Agent and the Company agree that all books, records, information and data pertaining to the business of the other party, including inter alia, personal, non-public Warrant holder information, which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement including the fees for services set forth in the attached schedule shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law, including, without limitation, pursuant to subpoenas from state or federal government authorities (e.g., in divorce and criminal actions).

9.10.Severability. This Warrant Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Warrant Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Warrant Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.

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9.11.Consequential Damages. Neither party to this Agreement shall be liable to the other party for any consequential, indirect, special or incidental damages under any provisions of this Agreement or for any consequential, indirect, punitive, special or incidental damages arising out of any act or failure to act hereunder even if that party has been advised of or has foreseen the possibility of such damages.

9.12.Force Majeure.  Notwithstanding anything to the contrary contained herein, the Warrant Agent will not be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, terrorist acts, shortage of supply, breakdowns or malfunctions, interruptions or malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or retrieval systems, labor difficulties, war, or civil unrest.

9.13Survival.  All provisions regarding indemnification, warranty, liability and limits thereon, compensation and expenses and confidentiality and protection of proprietary rights and trade secrets shall survive the termination or expiration of this Agreement.

Exhibit A Form of Warrant Certificate

Exhibit B Legend — Sponsor's Warrants

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

The Company:
RLJ ENTERTAINMENT, INC.
By:	/s/ ANDREW WILSON
Name: Andrew Wilson
Title: CFO

The Warrant Agent
COMPUTERSHARE, INC.
By:	/s/ MICHAEL LEGREGIN
Name:  Michael Legregin
Title:  Manager

COMPUTERSHARE TRUST Company, N.A.
By:	/s/ MICHAEL LEGREGIN
Name:  Michael Legregin
Title:  Manager

EXHIBIT A

WARRANT CERTIFICATE

 [TO BE INSERTED]

EXHIBIT B

LEGEND

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. IN ADDITION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR TRANSFERRED PRIOR TO THE DATE THAT IS THIRTY (30) DAYS AFTER THE DATE UPON WHICH RU ACQUISITION, INC. (THE "COMPANY") COMPLETES ITS INITIAL BUSINESS COMBINATION (AS DEFINED IN SECTION 3 OF THE WARRANT AGREEMENT REFERRED TO HEREIN) EXCEPT TO A PERMITTED TRANSFEREE (AS DEFINED IN SECTION 2 OF THE WARRANT AGREEMENT) WHO AGREES IN WRITING WITH THE COMPANY TO BE SUBJECT TO SUCH TRANSFER PROVISIONS.

SECURITIES EVIDENCED BY THIS CERTIFICATE AND SHARES OF THE COMMON STOCK OF THE COMPANY ISSUED UPON EXERCISE OF SUCH SECURITIES SHALL, BE ENTITLED TO REGISTRATION RIGHTS UNDER A REGISTRATION RIGHTS AGREEMENT TO BE EXECUTED BY THE COMPANY.

EX-21.1

EXHIBIT 21.1

Subsidiaries Of The Registrant

Acorn Media Group, Inc.	District of Columbia
RLJ Entertainment Holdings Ltd	England and Wales
RLJ Entertainment Ltd	England and Wales
Acorn Productions Ltd	England and Wales
Acorn Global Enterprises Limited	England and Wales
RLJE International Ltd	England and Wales
Foyles War 8 Productions Limited	England and Wales
RLJ Entertainment Australia Pty Ltd	Australia
Image Entertainment, Inc.	Delaware
Image/Madacy Home Entertainment, LLC	California

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

RLJ Entertainment, Inc.:

We consent to the incorporation by reference in the registration statement (No. 333-188609) on Form S-8   of RLJ Entertainment, Inc. of our report dated May 8, 2015, with respect to the consolidated balance sheet of RLJ Entertainment, Inc. as of December 31, 2014 and the related consolidated statements of operations, equity, cash flows, and comprehensive income (loss) for the year ended December 31, 2014, which report appears in the December 31, 2014 annual report on Form 10-K of RLJ Entertainment, Inc.

/s/ KPMG LLP

McLean, Virginia

May 8, 2015

EX-23.2

EXHIBIT 23.2

Consent of Independent Registered Public Accounting Firm

RLJ Entertainment, Inc.

8515 Georgia Avenue, Suite 650

Silver Spring, Maryland, 20910

We hereby consent to the incorporation by reference in the Registration Statement, as amended, on Form S-8 (No. 333-188609) of RLJ Entertainment, Inc. of our report dated March 19, 2014, relating to the consolidated financial statements which appears in this Form 10-K as of and for the year ended December 31, 2013.

/s/ BDO USA, LLP

BDO USA, LLP

Los Angeles, California

May 8, 2015

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Miguel Penella, certify that:

1. I have reviewed this annual report on Form 10-K of RLJ Entertainment, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 8, 2015	/s/ MIGUEL PENELLA
		Miguel Penella
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Andrew S. Wilson, certify that:

1. I have reviewed this annual report on Form 10-K of RLJ Entertainment, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures andpresented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 8, 2015	/s/ ANDREW S. WILSON
		Andrew S. Wilson
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of RLJ Entertainment, Inc. (the “Company”) on Form 10-K for the fiscal December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Miguel Penella, Chief Executive Officer and Andrew S. Wilson, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) Based on my knowledge, the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 8, 2015	/s/ MIGUEL PENELLA
		Miguel Penella
		Chief Executive Officer
Date:	May 8, 2015	/s/ ANDREW S. WILSON
		Andrew S. Wilson
		Chief Financial Officer

EX-99.2

Exhibit 99.2

AGATHA CHRISTIE LIMITED AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2014

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Agatha Christie Limited:

We have audited the accompanying consolidated balance sheet of Agatha Christie Limited and subsidiary (together, the “Company”) as of December 31, 2014, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Agatha Christie Limited and subsidiary as of December 31, 2014, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

KPMG LLP

London, United Kingdom

March 23, 2015

AGATHA CHRISTIE LIMITED AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

As of 31 December 2014

Assets
Cash	£	2,635,000
Accounts receivable, net		337,000
Unbilled receivables		2,459,000
Film costs, net		9,449,000
Furniture, fixtures and equipment, net		11,000
Intangible assets, net		1,538,000
Deferred tax asset		582,000
Other assets		1,696,000
Total Assets	£	18,707,000
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable and accrued liabilities	£	837,000
Accrued corporate tax payable		540,000
Production obligations		1,929,000
Deferred revenues		9,962,000
Total Liabilities		13,268,000
Commitments and Contingencies - see Note 10
Shareholders' Equity:
Series A ordinary stock, 4,900 shares authorized and outstanding		4,900
Series B ordinary stock, 5,100 shares authorized and outstanding		5,100
Retained earnings		5,429,000
Total Shareholders' Equity		5,439,000
Total Liabilities and Shareholders' Equity	£	18,707,000

See accompanying notes to consolidated financial statements.

AGATHA CHRISTIE LIMITED AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME

For the Year Ended 31 December 2014

Revenues:
Publishing revenues	£	3,265,000
Film and television licensing revenues		4,826,000
Total Revenues		8,091,000
Expenses:
Amortization of film costs		2,013,000
Publishing		421,000
General and administrative		1,715,000
Depreciation and amortization		85,000
Total Expenses		4,234,000
Operating Income		3,857,000
Interest expense		(1,000	)
Income before Income Tax Provision		3,856,000
Income Tax Provision		(914,000	)
Net Income		2,942,000
Other Comprehensive Income		–
Comprehensive Income	£	2,942,000

See accompanying notes to consolidated financial statements.

AGATHA CHRISTIE LIMITED AND SUBSIDIARY

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Year Ended 31 December 2014

	Series A				Series B							Accumulated
	Ordinary Shares				Ordinary Shares							Other		Total
									Retained			Comprehensive		Shareholders'
	Shares		Amount		Shares		Amount		Earnings			Income		Equity
Balance at 1 January 2014		4,900	£	4,900		5,100	£	5,100	£	6,337,000		£	–	£	6,347,000
Distributions to   Shareholders		–		–		–		–		(3,850,000	)		–		(3,850,000	)
Net Income		–		–		–		–		2,942,000			–		2,942,000
Balance at 31 December 2014		4,900	£	4,900		5,100	£	5,100	£	5,429,000		£	-	£	5,439,000

See accompanying notes to consolidated financial statements.

AGATHA CHRISTIE LIMITED AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Year Ended 31 December 2014

Operating Activities
Net income	£	2,942,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		85,000
Amortization of film costs		2,013,000
Deferred tax provision		(109,000	)
Provision for bad debts		(3,000	)
Changes in operating assets and liabilities:
Accounts receivable, net		(241,000	)
Unbilled receivables		143,000
Film costs, net		(5,128,000	)
Other assets		(1,853,000	)
Accounts payable and accrued expenses		691,000
Deferred revenues		4,595,000
Net cash provided by operating activities		3,135,000
Investing Activities
Capital expenditures		(40,000	)
Financing Activities
Production obligation borrowings		1,168,000
Dividend payments		(3,850,000	)
Net cash used in financing activities		(2,682,000	)
Net change in cash and cash equivalents		413,000
Cash, beginning of period		2,222,000
Cash, end of period	£	2,635,000
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Income taxes	£	1,367,000
Interest expense	£	1,000

See accompanying notes to consolidated financial statements.

Note 1. Accounting Policies.

Statement of Directors’ Responsibilities. These consolidated financial statements have been prepared by and are the responsibility of the directors of Agatha Christie Limited and RLJ Entertainment, Inc.

Basis of Presentation.  The principal activity of Agatha Christie Limited (the Company) and its subsidiary is the exploitation of the literary works of the late Agatha Christie, whose published works have been adopted for film, television, stage and games and are available in more than 50 languages.  The Company was established under laws of England and Wales and its principal executive offices are located in London, England.  The consolidated financial statements and related notes were prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP).  The Company has a wholly-owned subsidiary, Agatha Christie Productions Limited, that produces new television content beginning in 2014.

As permitted by the Accounting Standards Codification (or ASC) 926, Entertainment – Films, the Company has presented an unclassified balance sheet.

Foreign currencies.  Transactions in foreign currencies are recorded using the rate of exchange ruling for the month of the transaction. Assets and liabilities due in foreign currencies at the balance sheet date are remeasured into sterling at the rates of exchange ruling at the balance sheet date. Unrealized and realized exchange losses were recorded in general and administrative expenses in the accompanying income statement and totaled approximately £32,000.

Income taxes.  The Company accounts for income taxes pursuant to the provisions of ASC 740, Income Taxes. Under this method, deferred income tax assets and liabilities are determined based on the differences between the financial accounting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company records a valuation allowance for certain temporary differences to reduce its deferred tax assets to the amount that is more likely than not to be realized.

ASC 740-10, Income Taxes–Tax positions, provides guidance for recognising and measuring uncertain tax positions.  It prescribes a threshold condition that a tax position must meet for any of the benefits of the uncertain tax position to be recognised in the consolidated financial statements. It also provides accounting guidance on derecognising, classification and disclosure of these uncertain tax positions.  A tax benefit will be recognised if the weight of available evidence indicates that the tax position is more likely than not to be sustained upon examination by the relevant tax authorities.  The recognition and measurement of benefits related to our tax positions requires significant judgment as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities.  Differences between actual results and our assumptions, or changes in our assumptions in future periods, are recorded in the period they become known.  For tax liabilities, the Company recognises accrued interest related to uncertain tax positions as a component of income tax expense, and penalties, if incurred, are recognised as a component of operating expenses.

Revenue.  Revenue represents royalties, licensing and other income earned during the period and excludes value added taxes (or VAT).  Revenue is recognised upon meeting the recognition revenue criteria of ASC 926, Entertainment –Films, and ASC 605, Revenue Recognition.

(a) Publishing Revenues

Contracted revenue from royalty contracts is recognised by spreading income straight line over the term of the contract on a monthly basis starting with the month that the contract commences.

Royalty income in excess of the minimum contractual revenue is recognised in the period in which additional publishing revenues are due to the Company as reported by the publisher or as otherwise determinable and probable.

Note 1. Accounting Policies (continued)

(b) Film and Television Licensing Revenues

Film and television licensing revenues are recognised when the programme is delivered to the licensee subject to the following criteria being met:

(i)Contract signed by both parties;

(ii)Content is available for exploitation by the licensee;

(iii)The licensing fee is either fixed or determinable; and

(iv)Collection of license fee is reasonably assured.

Customer payments received prior to all revenue recognition criteria being met are recorded as deferred revenue.  To the extent titles are cross-collateralized, non-refundable licensing advances received are deferred and recognized as revenues as the customer exploits the titles.

Cash.  Cash and cash equivalents include unrestricted cash accounts, money market investments and highly liquid investment instruments with original or remaining maturity of three months or less at the date of purchase.

Accounts receivable and allowance for doubtful accounts.  Accounts receivable are evaluated to determine if they will ultimately be collected using significant judgments and estimates, including an analysis of specific risks on a customer-by-customer basis for our larger customers and an analysis of the length of time receivables have been past due.  Based on this information, the Company reserves an amount that we believe to be doubtful of collection.  If the financial condition of our customers were to deteriorate or if economic conditions were to worsen, additional allowances might be required in the future.  The Company established a bad debt reserve of approximately £119,000 and during 2014 recognised bad debt recoveries of £3,000 as a component of general and administrative expenses.

Furniture, fixtures and equipment and depreciation.  Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on a straight line basis over the assets’ estimated useful lives of 2-5 years.

Intangible assets.  Trademarks are carried at cost and are amortized on a straight-line basis over their estimated useful life of 10 years.

Costs of acquiring copyrights are carried at cost and are written off evenly over the expected useful lives of the copyrights, i.e., 32 more years.  The costs incurred on the acquisition of the reversionary rights and copyrights acquired subsequent to the acquisition of the reversionary rights are being written off on a straight-line basis over the remaining period of copyright, which ends in 2046.  The Company considers the remaining copyright period to be an appropriate estimate for the useful economic life of copyrights given the enduring popularity of Agatha Christie’s written work.

Film Costs.  Investment in films and television programmes includes the unamortized costs of completed films and television programmes which have been produced by the Company and films and television programmes in progress and in development.  For films and television programmes produced by the Company, capitalized costs include all direct production and financing costs and production overhead.  Costs of producing films and television programmes are amortized using the individual-film-forecast method, whereby these costs are amortized in the proportion that current year’s revenue bears to management’s estimate of ultimate revenue at the beginning of the current year expected to be recognised from the exploitation, exhibition or sale of the films or television programmes.  Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release or from the date of delivery of the first episode for episodic television series.  Films and television programmes in progress include the accumulated costs of productions which have not yet been completed.  Films and television programmes in development include costs of acquiring film rights to books, stage plays or original screenplays and costs to adapt such projects. Such costs are capitalized and, upon commencement of production, are transferred to production costs. Projects in development are written off at the earlier of the date they are determined not to be recoverable or when abandoned, or three years from the date of the initial investment.

Note 1. Accounting Policies (continued)

Impairment of Long-Lived Assets.  We review the impairment of long-lived and specific, finite-lived, identifiable intangible assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  An impairment loss would be recognised when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount.  The amount of impairment loss that would be recognised equals the amount by which the carrying value of the asset being assessed exceeds the asset’s fair value.  We have no intangible assets with indefinite useful lives.  During 2014, there was neither an indictor of impairment nor a recorded impairment to our long-lived assets.

Use of estimates.  The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of its financial statements and the reported amounts of revenue and expense during the reporting period.  The most significant estimate made by management in the preparation of the consolidated financial statements relate to ultimate revenues, which impact film cost amortization.  Actual results could differ from those estimates.

Fair Value Measurements.  The carrying amount of our financial instruments, which principally include cash, billed and unbilled receivables, accounts payable, accrued expenses and production obligations, approximates fair value due to the relatively short maturity of such instruments.

Financial Accounting Standards Board (or FASB) Accounting Standards Codification (or ASC) 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Fair value measurements made by the Company are generally limited to valuing the film and television programmes when assessing impairments, as needed.  These measurements are Level 3 measurements.

Recent Accounting Pronouncements.

No new accounting pronouncements were adopted during 2014.  There are no new accounting pronouncements issued that affect the Company’s accounting that have not been adopted.

Note 2. Revenues.

An analysis of revenues by geographical market is given below (in £000):

United Kingdom	5,414
Other European Community	1,611
Americas	659
Rest of World	407
	8,091

Note 3. Taxation.

Income tax expense is summarized as follows (in £000):

Current UK Corporation Tax
Tax on profits for the period	1,024
Adjustment in respect of prior periods	(1	)
	1,023
Deferred UK Corporation Tax
Origination of timing differences	(195	)
Change in valuation allowance	(53	)
Effect of decreased tax rate on opening deferred tax position	139
	(109	)
Total Tax Expense	914

The tax effects of temporary differences that give rise to a significant portion of the net deferred tax assets are presented below (in £000):

Deferred tax asset:
Deferred revenues	62
Amortization in respect of copyright acquired prior to 2002	423
Amortization in respect of film costs	520
	1,005
Less valuation allowance	(423	)
Total deferred tax asset	582

The Company has placed a full valuation allowance on its deferred tax asset related to amortization of copyrights acquired prior to 2002.  A valuation reserve is warranted because realization of this deferred tax asset would only be achieved if the asset was sold or otherwise disposed of.  The Company’s current plans are to continue to hold and exploit the copyright asset through its remaining useful life.

Expected income tax expense based on statutory rates for the year ended 31 December 2014 differed from actual income tax expense as follows (in £000):

Expected income tax expense at statutory rates	829
Adjustment to tax charges in respect of previous periods	(1	)
Decrease in valuation allowance	(53	)
Change in tax rate	139
Effective income tax expense	914

Note 4. Intangible Assets.

Intangible assets activity and balances as of and for the year ended 31 December 2014 were as follows:

	Copyrights		Trademarks			Total
	£000		£000			£000
Cost
At beginning of year		3,516		319			3,835
Additions		—		25			25
Disposals		—		(12	)		(12	)
At end of year		3,516		332			3,848
Amortisation
At beginning of year		2,102		140			2,242
Charged in year		48		32			80
Disposals		—		(12	)		(12	)
At end of year		2,150		160			2,310
Net book value
At end of year		1,366		172			1,538

During the year ended 31 December 2014, the intangible asset amortization expense was £80,000.

As of 31 December 2014, future amortization for the next five years of other intangible assets is approximately as follows:

Fiscal Year Ended 31 December	Amount
	£000
2015		80
2016		80
2017		80
2018		80
2019		80

Note 5. Tangible Assets.

Fixtures, fittings and office equipment activity and balances as of and for the period ended 31 December 2014 were as follows (£000):

Cost
At beginning of year	224
Additions	15
Disposals	(22	)
At end of year	217
Depreciation
At beginning of year	223
Charged in year	5
Disposals	(22	)
At end of year	206
Net book value
At end of year	11

Depreciation and amortization expense for the year ended 31 December 2014 was £5,000.

Note 6. Film and Television Costs.

Unamortized costs as of 31 December 2014 were as follows (£000):

Unamortized Costs
Released, net of accumulated amortization	2,755
In production	6,468
Other	226
At 31 Dec	9,449

The Company expects approximately 24% of completed films and television programmes, net of accumulated amortization, will be amortized during the one-year period ending 31 December 2015.  Additionally, the Company expects approximately 69% of completed and released films and television programmes, net of accumulated amortization, will be amortized during the three-year period ending 31 December 2017.  Finally, the Company expects approximately 100% of completed and released films and television programmes, net of accumulated amortization, will be amortized during the five-year period ending 31 December 2019.

Note 7. Production Obligation.

To help fund its production obligations, the Company entered into a credit facility whereby the Company can borrow up to £1,418,510 at an interest rate of LIBOR plus 1% per annum.  Interest is payable monthly.  Amounts borrowed are payable upon maturity of the loan, which is 31^st October 2015.  The loan is secured by the programme being produced.  As of 31^st December 2014, the amount owed under this facility was £1,168,000.

Note 8. Share Capital.

At 31 December 2014, share capital was as follows:

	£
Authorised
4900 ‘A’ ordinary shares of £1 each		4,900
5100 ‘B’ ordinary shares of £1 each		5,100
		10,000
Allotted, called up and fully paid
4900 ‘A’ ordinary shares of £1 each		4,900
5100 ‘B’ ordinary shares of £1 each		5,100
		10,000

The Company has two types of issued share capital, ‘A’ shares and ‘B’ shares. ‘A’ and ‘B’ shareholders have the same rights other than holders of ‘A’ shares appoint the Chairman of the Board, who has the casting vote in the event of a tie.

Note 9. Related Party Transactions.

During 2014 the following related party transactions occurred: total costs of £1,362,000 were recharged to the Company by a fellow subsidiary undertaking RLJ Entertainment Ltd. (RLJE UK).  These amounts were included in general and administrative expenses. At 31 December 2014, the balance owed by ACL was £17,000 and is included in accounts payable and accrued liabilities.

The aggregate amount of dividends paid during 2014 was £3,850,000.

All staff are employed by a fellow subsidiary undertaking. Staff costs for 2014 of £978,000 were recharged by RLJE UK. The totals include Directors’ emoluments of £175,000.

Acorn Global Enterprises Ltd (AGE), a fellow subsidiary of RLJE UK, has licensed the distribution rights for our program that is currently in production.  As of year end, we have recorded deferred revenues of £889,000 from this license agreement.  An additional £392,000 was received in January 2015 and recorded as deferred revenue when received.

Note 10. Contingencies.

At 31 December 2014, the Company did not have any material contingent liabilities.

At 31 December 2014, the Company had capital commitments of £1,292,000 in respect of production for film and television programmes for which no provision has been made in the consolidated financial statements.  Production will be completed in 2015.

Note 11. Concentration of Risk.

During 2014, the Company recognised publishing revenues of £929,000 (or 11 percent) from one publisher.  The main contract with this publisher expires during June 2020.  As of 31 December 2014, deferred revenues of £3,253,000 represent amounts received from this publisher, which will be recognised as revenues ratably over the remaining contract term.  During 2014, the Company recognised film and television licensing revenues of £3,507,000 (or 43 percent) from one broadcaster.  The license period for significant territories licensed by this broadcaster expires in December 2026.  As this broadcaster exploits the licensed content through additional airings (reruns) and through other exploitation of various markets, the Company is contractually entitled to additional licensing fees.  As of 31 December 2014, deferred revenues related to this broadcaster were £209,000, which will be recognised as revenues as broadcaster exploits the licensed content.  For 2014, there are no other customers that represent 10 percent or more of the Company’s total revenues.

As of 31 December 2014, two licensees account for 10 percent or more of the Company’s billed and unbilled receivables.  These customers account for 65 percent of the unbilled receivables and 26% of the billed receivables as of 31 December 2014.

Cash and cash equivalents were invested in high credit-quality financial institutions.  Amounts on deposit are generally not insured. The Company has not experienced any losses in such accounts and management believes the Company is not exposed to any significant risk on these accounts.

Note 12. Subsequent Events.

The Company evaluated all events or transactions that occurred after 31 December 2014 up through, 23 March 2015, the date the Company issued these consolidated financial statements.

XML

DEBT (Tables)

12 Months Ended

Dec. 31, 2014

DEBT [Abstract]

Debt Outstanding

Debt as of December 31, 2014 consists of the following:

(In thousands)

	Maturity Date	Interest Rate	December 31, 2014
Senior secured term notes	September 11, 2019	LIBOR + 9.9% -10.64%	$	69,388
Less: debt discount				(4,509	)
Total senior-term notes, net of discount				64,879
Subordinated notes payable to prior Image shareholders	October 3, 2018	12 %		16,034
Debt			$	80,913

Debt as of December 31, 2013 consists of the following:

(In thousands)

	Maturity Date	Interest Rate	December 31, 2013
Revolving credit facility	October 3, 2017	Prime + 5% or LIBOR + 6%	$	14,949
Senior secured term notes:
Term loan – A	October 3, 2017	Prime or LIBOR +  4.5% - 5.5%		20,476
Term loan – B	April 3, 2018	Prime or LIBOR + 6.25% - 7.25%		12,287
Term loan – C	April 3, 2018	Prime or LIBOR + 9.25% - 10.25%		15,517
Principal balance outstanding				48,280
Less: debt discount				(2,007	)
Total senior term notes				46,273
Subordinated notes payable prior Image shareholders	October 3, 2018	12%		15,042
Debt, net of discount				76,264
Subordinated production loan - Foyle's War	November 8, 2014	LIBOR + 2.15%		1,294
Debt			$	77,558

Future Minimum Principal Payments

Future minimum principal payments as of December 31, 2014 are as follows:

(In thousands)

	Senior Notes		Subordinated Notes		Total
2015	$	2,450	$	—	$	2,450
2016		2,975		—		2,975
2017		4,375		—		4,375
2018		59,588		16,034		75,622
	$	69,388	$	16,034	$	85,422

Schedule of Future Leverage Ratio Requirements

The Credit Agreement contains certain financial and non-financial covenants beginning on December 31, 2014.  Financial covenants are assessed quarterly and are based on Adjusted EBITDA, as defined in the Credit Agreement.  Financial covenants vary each quarter and generally become more restrictive over time.  Financial covenants include the following:

	December 31, 2014	2015	2016	Thereafter
Leverage Ratios:
Senior debt-to-Adjusted EBITDA	4.64 : 1.00	Ranges from 4.87 : 1.00 to 4.03 : 1.00	Ranges from 3.86 : 1:00 to 2:67 : 1.00	2.67 : 1.00
Total debt-to-Adjusted EBITDA	5.71 : 1.00	Ranges from 6.09 : 1.00 to 5.06 : 1.00	Ranges from 4.82 : 1:00 to 3.44 : 1.00	3.44 : 1.00
Fixed charge coverage ratio	1.10 : 1.00	Ranges from 1.07 : 1.00 to 1.20 : 1.00	Ranges from 1.24 : 1.00 to 1.59 : 1.00	1.59 : 1.00

XML

INVESTMENTS IN CONTENT (Details) (USD $)	3 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2014	Dec. 31, 2013
Produced and Acquired Content [Abstract]
Released		$ 57,766,000	$ 66,527,000
Completed, not released		7,205,000	10,387,000
In-production		2,554,000	4,727,000
Investment in content, net		67,525,000	81,641,000
Impairment charges	1,500,000	4,800,000	6,400,000
Investment in Content, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
1 year		18,046,000
2 - 3 years		22,102,000
4 - 5 years		10,814,000
Thereafter		6,804,000
Total estimated future amortization		$ 57,766,000
1 year (in hundredths)		31.20%
2 - 3 years (in hundredths)		38.30%
4 - 5 years (in hundredths)		18.70%
Thereafter (in hundredths)		11.80%
Total estimated future amortization (in hundredths)		100.00%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Investment in Content [Abstract]
Ultimate revenue life for episodic television series	10 years
Ultimate revenue life for episodic television series, still in production	5 years
Warrant Liability [Abstract]
Warrants outstanding (in shares)	21,041,667	21,041,667
Income Tax [Abstract]
Valuation allowance as a percentage of deferred tax assets (in hundredths)	99.00%	100.00%
Advertising Costs [Abstract]
Advertising expense	$ 3.3	$ 3.4
Net Revenues [Member] | Customer Concentration Risk [Member] | Amazon [Member]
Major Customers and Distribution Facilitators [Abstract]
Concentration risk, percentage (in hundredths)	19.00%	13.60%
Net Revenues [Member] | Customer Concentration Risk [Member] | Entertainment One Films Canada Inc. [Member]
Major Customers and Distribution Facilitators [Abstract]
Concentration risk, percentage (in hundredths)		10.30%
Net Revenues [Member] | Customer Concentration Risk [Member] | Top Five Customers [Member]
Major Customers and Distribution Facilitators [Abstract]
Concentration risk, percentage (in hundredths)	46.20%	42.10%
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Sony Pictures Home Entertainment [Member]
Major Customers and Distribution Facilitators [Abstract]
Concentration risk, percentage (in hundredths)	44.00%	43.80%
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Netflix [Member]
Major Customers and Distribution Facilitators [Abstract]
Concentration risk, percentage (in hundredths)	21.40%	17.30%
Furniture, Fixtures and Equipment [Member] | Minimum [Member]
Property, Equipment and Improvements [Abstract]
Estimated useful life	3 years
Furniture, Fixtures and Equipment [Member] | Maximum [Member]
Property, Equipment and Improvements [Abstract]
Estimated useful life	7 years
Software [Member]
Property, Equipment and Improvements [Abstract]
Estimated useful life	3 years
Leasehold Improvements [Member]
Property, Equipment and Improvements [Abstract]
Estimated useful life	10 years
Trade Names [Member]
Goodwill and Other Intangible Assets [Abstract]
Estimated useful life	15 years
Websites [Member]
Goodwill and Other Intangible Assets [Abstract]
Estimated useful life	3 years
Supplier Contracts [Member]
Goodwill and Other Intangible Assets [Abstract]
Estimated useful life	7 years
Customer Relationships [Member]
Goodwill and Other Intangible Assets [Abstract]
Estimated useful life	5 years
Accelerated amortization method	The recorded value of our customer relationships is amortized on an accelerated basis over five years, with approximately 60% being amortized over the first two years (through 2014), 20% during the third year and the balance ratably over the remaining useful life.
Percentage of accelerated amortization for first two years (in hundredths)	60.00%
Percentage of accelerated amortization for third years and thereafter (in hundredths)	20.00%
Options on Future Content [Member]
Goodwill and Other Intangible Assets [Abstract]
Estimated useful life	7 years
Accelerated amortization method	The recorded value of our options on future content is amortized based on forecasted future revenues, whereby approximately 50% is being amortized over the first two years (through 2014), 25% during the third year and the balance in decreasing amounts over the remaining four years.
Percentage of accelerated amortization for first two years (in hundredths)	50.00%
Percentage of accelerated amortization for third years (in hundredths)	25.00%
Leases [Member]
Goodwill and Other Intangible Assets [Abstract]
Estimated useful life	2 years

XML

COMMITMENTS AND CONTINGENCIES (Details) (USD $)	12 Months Ended
	Dec. 31, 2014 Agreement	Dec. 31, 2013
Future Minimum Annual Rental Payments by Year Under Operating Leases [Abstract]
2015	$ 1,164,000
2016	1,166,000
2017	1,191,000
2018	1,056,000
2019	878,000
Thereafter	1,181,000
Total	6,636,000
Rent expense	2,000,000	1,400,000
Number of employment agreements	4
Silver Spring, Maryland [Member] | Corporate [Member]
Locations [Abstract]
Primary Purpose	Executive Office/Administrative/Sales/ Content Acquisition
Lease Expiration Date	Nov. 15, 2020
Woodland Hills, California [Member] | Wholesale [Member]
Locations [Abstract]
Primary Purpose	Administrative/Sales/Content Acquisition
Lease Expiration Date	Jun. 30, 2021
Stillwater, Minnesota [Member] | Direct-to-Consumer [Member]
Locations [Abstract]
Primary Purpose	Sales and Administration for Direct-to-Consumer
Lease Expiration Date	Apr. 30, 2022
London, England [Member] | IP Licensing/Wholesale/Direct-to-Consumer [Member]
Locations [Abstract]
Primary Purpose	Content Development and Production/Sales/ Administration for the U.K., including ACL
Lease Expiration Date	Jul. 01, 2018
Sydney, Australia [Member] | Wholesale [Member]
Locations [Abstract]
Primary Purpose	Sales/Administration
Lease Expiration Date	Mar. 01, 2017
Employment Agreements [Member]
Future Obligations by Year [Abstract]
2015	1,683,000
2016	983,000
2017	750,000
2018	750,000
2019	750,000
Total	4,916,000
Royalty Advances, Minimum Royalty Guarantees and Exclusive Distribution Fee Guarantees [Member]
Future Obligations by Year [Abstract]
Total	$ 7,100,000

XML

GOODWILL AND OTHER INTANGIBLE ASSETS (Details) (USD $)	3 Months Ended	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Other Intangible Assets [Line Items]
Goodwill, gross	$ 45,872,000	$ 45,872,000	$ 45,872,000	$ 47,382,000
Adjustment			(1,194,000)
Final purchase price allocation and adjustments			(316,000)
Impairment loss during year		(981,000)	0
Accumulated impairment losses	(981,000)	(981,000)
Goodwill, net	44,891,000	44,891,000	45,872,000
Gross Carrying Amount	26,591,000	26,591,000	26,222,000
Accumulated Amortization	(11,319,000)	(11,319,000)	(6,571,000)
Total intangible assets	15,272,000	15,272,000	19,651,000
Future Amortization of Other Intangible Assets [Abstract]
2015	3,654,000	3,654,000
2016	2,185,000	2,185,000
2017	1,849,000	1,849,000
2018	1,013,000	1,013,000
2019	913,000	913,000
Thereafter	5,658,000	5,658,000
Total intangible assets	15,272,000	15,272,000	19,651,000
Amortization of goodwill		21,400,000
Amortization period		15 years
Common stock decreased (in hundredths)	48.00%
Forecast		5 years
Fair value discount rate (in hundredths)		18.00%
Amortization expense		4,800,000	5,300,000
Trade Names [Member]
Other Intangible Assets [Line Items]
Gross Carrying Amount	10,950,000	10,950,000	10,950,000
Accumulated Amortization	(1,642,000)	(1,642,000)	(913,000)
Total intangible assets	9,308,000	9,308,000	10,037,000
Future Amortization of Other Intangible Assets [Abstract]
Total intangible assets	9,308,000	9,308,000	10,037,000
Customer Relationships [Member]
Other Intangible Assets [Line Items]
Gross Carrying Amount	9,290,000	9,290,000	9,290,000
Accumulated Amortization	(6,039,000)	(6,039,000)	(3,484,000)
Total intangible assets	3,251,000	3,251,000	5,806,000
Future Amortization of Other Intangible Assets [Abstract]
Total intangible assets	3,251,000	3,251,000	5,806,000
Websites [Member]
Other Intangible Assets [Line Items]
Gross Carrying Amount	3,331,000	3,331,000	2,962,000
Accumulated Amortization	(2,211,000)	(2,211,000)	(1,386,000)
Total intangible assets	1,120,000	1,120,000	1,576,000
Future Amortization of Other Intangible Assets [Abstract]
Total intangible assets	1,120,000	1,120,000	1,576,000
Capitalized costs		437,000	173,000
Supplier Contracts [Member]
Other Intangible Assets [Line Items]
Gross Carrying Amount	1,720,000	1,720,000	1,720,000
Accumulated Amortization	(609,000)	(609,000)	(338,000)
Total intangible assets	1,111,000	1,111,000	1,382,000
Future Amortization of Other Intangible Assets [Abstract]
Total intangible assets	1,111,000	1,111,000	1,382,000
Option for Future Content [Member]
Other Intangible Assets [Line Items]
Gross Carrying Amount	900,000	900,000	900,000
Accumulated Amortization	(418,000)	(418,000)	(78,000)
Total intangible assets	482,000	482,000	822,000
Future Amortization of Other Intangible Assets [Abstract]
Total intangible assets	482,000	482,000	822,000
Leases [Member]
Other Intangible Assets [Line Items]
Gross Carrying Amount	400,000	400,000	400,000
Accumulated Amortization	(400,000)	(400,000)	(372,000)
Total intangible assets	0	0	28,000
Future Amortization of Other Intangible Assets [Abstract]
Total intangible assets	0	0	28,000
Wholesale [Member]
Other Intangible Assets [Line Items]
Goodwill, gross	43,036,000	43,036,000	43,036,000	37,966,000
Adjustment			(1,194,000)
Final purchase price allocation and adjustments			6,264,000
Impairment loss during year		0
Accumulated impairment losses	0	0
Goodwill, net	43,036,000	43,036,000
Direct to Consumer [Member]
Other Intangible Assets [Line Items]
Goodwill, gross	2,836,000	2,836,000	2,836,000	9,416,000
Adjustment			0
Final purchase price allocation and adjustments			(6,580,000)
Impairment loss during year		(981,000)
Accumulated impairment losses	(981,000)	(981,000)
Goodwill, net	$ 1,855,000	$ 1,855,000

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COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2014

COMMITMENTS AND CONTINGENCIES [Abstract]

Lease Locations

RLJE’s principal executive office is located in Silver Spring, Maryland.  We also maintain offices in Woodland Hills, California; Stillwater, Minnesota; London, England and Sydney, Australia with varying terms and expiration dates.  All locations are leased.  A summary of our locations is as follows:

Location	Primary Purpose	Lease Expiration	Reporting Segment (1)
Silver Spring, MD	Executive Office/Administrative/Sales/ Content Acquisition	November 15, 2020	Corporate
Woodland Hills, CA	Administrative/Sales/Content Acquisition	June 30, 2021	Wholesale
Stillwater, MN	Sales and Administration for Direct-to-Consumer	April 30, 2022	Direct-to-Consumer
London, England	Content Development and Production/Sales/ Administration for the U.K., including ACL	July 1, 2018	IP Licensing/Wholesale/ Direct-to-Consumer
Sydney, Australia	Sales/Administration	March 1, 2017	Wholesale

⁽¹⁾ The segment descriptions above reflect the location’s primary activity.

Future Minimum Annual Rental Payments by Year under Operating Leases

Future minimum annual rental payments by year under operating leases at December 31, 2014, are approximately as follows:

(In thousands)
Year Ended December 31,	Lease Commitment
2015	$	1,164
2016		1,166
2017		1,191
2018		1,056
2019		878
Thereafter		1,181
	$	6,636

Future Obligations by Year for Compensation

At December 31, 2014, our future contractual obligations under four employment agreements are summarized below.  Included in the amounts below are any minimum bonus or agreed-upon amounts to be paid within the employment contracts over the next five years as long as the employee continues to be an employee in good standing and meets the performance criteria within the individual employment agreements.  One of the four employment agreements does not have an expiration date and is included in each of the five years presented below.

(In thousands)
Year Ended December 31,	Employment Contracts
2015	$	1,683
2016		983
2017		750
2018		750
2019		750
	$	4,916

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EQUITY EARNINGS IN AFFILIATE (Tables)

12 Months Ended

Dec. 31, 2014

EQUITY EARNINGS IN AFFILIATE [Abstract]

Summary of ACL investment account

A summary of the ACL investment account is as follows:

(In thousands)
Investment balance at December 31, 2012	$	25,449
Share of income		3,834
Dividends received		(4,005	)
Basis-difference amortization		(538	)
Translation adjustment		493
Investment balance at December 31, 2013		25,233
Share of income		3,169
Dividends received		(4,040	)
Basis-difference amortization		(589	)
Translation adjustment		(1,492	)
Investment balance at December 31, 2014	$	22,281

Summarized Financial Information of ACL

The following summarized financial information is derived from financial statements of ACL as of December 31, 2014 and 2013 (balance sheets), and for the years ended December 31, 2014 and 2013 (income statements):

(In thousands)	December 31,
	2014			2013
Cash	$	4,107		$	3,683
Film costs		14,728			9,835
Other assets		10,322			8,294
Production obligation payable		(3,007	)		—
Deferred revenues		(15,527	)		(8,895	)
Other liabilities		(2,147	)		(2,396	)
Equity	$	8,476		$	10,521

	Years Ended December 31,
(In thousands)	2014			2013
Revenues	$	13,460		$	36,976
Film cost amortization		(3,349	)		(25,558	)
General, administrative and other expenses		(3,542	)		(3,307	)
Income from operations		6,569			8,111
Net income	$	4,939		$	5,985

XML

DEBT, FUTURE MINIMUM PRINCIPAL PAYMENTS AND FINANCIAL COVENANTS (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
Future Minimum Principal Payments [Abstract]
2015	$ 2,450
2016	2,975
2017	4,375
2018	75,622
Long-term Debt, Gross	85,422
Senior Notes [Member]
Future Minimum Principal Payments [Abstract]
2015	2,450
2016	2,975
2017	4,375
2018	59,588
Long-term Debt, Gross	69,388	48,280
Subordinated Notes [Member]
Future Minimum Principal Payments [Abstract]
2015	0
2016	0
2017	0
2018	16,034
Long-term Debt, Gross	$ 16,034
New Credit Agreement [Member] | December 31, 2014 [Member]
Future Minimum Principal Payments [Abstract]
Senior debt-to-Adjusted EBITDA	4.64
Total debt-to-Adjusted EBITDA	5.71
Fixed charge coverage ratio	1.10
New Credit Agreement [Member] | December 31, 2015 [Member] | Minimum [Member]
Future Minimum Principal Payments [Abstract]
Senior debt-to-Adjusted EBITDA	4.03
Total debt-to-Adjusted EBITDA	5.06
Fixed charge coverage ratio	1.20
New Credit Agreement [Member] | December 31, 2015 [Member] | Maximum [Member]
Future Minimum Principal Payments [Abstract]
Senior debt-to-Adjusted EBITDA	4.87
Total debt-to-Adjusted EBITDA	6.09
Fixed charge coverage ratio	1.07
New Credit Agreement [Member] | December 31, 2016 [Member] | Minimum [Member]
Future Minimum Principal Payments [Abstract]
Senior debt-to-Adjusted EBITDA	2.67
Total debt-to-Adjusted EBITDA	3.44
Fixed charge coverage ratio	1.59
New Credit Agreement [Member] | December 31, 2016 [Member] | Maximum [Member]
Future Minimum Principal Payments [Abstract]
Senior debt-to-Adjusted EBITDA	3.86
Total debt-to-Adjusted EBITDA	4.82
Fixed charge coverage ratio	1.24
New Credit Agreement [Member] | Thereafter [Member]
Future Minimum Principal Payments [Abstract]
Senior debt-to-Adjusted EBITDA	2.67
Total debt-to-Adjusted EBITDA	3.44
Fixed charge coverage ratio	1.59

XML

RELATED PARTY TRANSACTIONS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Jun. 27, 2013
Related Party Transaction [Line Items]
Dividends paid	$ 4,000,000	$ 4,000,000
Debt amount lent by subsidiary	80,913,000	76,264,000
Foreign currency exchange loss	(1,100,000)	(484,000)
Contract obligations remaining amount			3,500,000
Agatha Christie Limited [Member]
Related Party Transaction [Line Items]
Overhead and personnel costs charged	2,300,000	2,100,000
Acorn Production Limited [Member] | U.K. subsidiaries [Member]
Related Party Transaction [Line Items]
Debt amount lent by subsidiary	15,500,000
Acorn Production Limited [Member] | Australian Subsidiary [Member]
Related Party Transaction [Line Items]
Debt amount lent by subsidiary	3,600,000
RLJ SPAC Acquisition, LLC [Member]
Related Party Transaction [Line Items]
Common stock outstanding	$ 2,000,000
Share purchased (in shares)	128,665	232,531

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CUSTOMER RELATIONSHIP

12 Months Ended

Dec. 31, 2014

CUSTOMER RELATIONSHIP [Abstract]

CUSTOMER RELATIONSHIP

NOTE 18. CUSTOMER RELATIONSHIP

During the year ended December 31, 2013, we terminated our business relationship with an inventory fulfillment partner and recorded a sales return of approximately $2.9 million, which negatively impacted our gross margin by approximately $1.3 million.  Additionally, we agreed to terms to early terminate a content output agreement with a content supplier effective December 31, 2013, exclusive of a 90-day sell off period. The result of the termination was a non-cash charge of approximately $4.6 million, which includes $603,000 of accumulated amortization, recorded in the second quarter of 2013, related to its unamortized content assets and inventories on the Company’s balance sheet.

XML

EQUITY EARNINGS IN AFFILIATE (Details)	12 Months Ended			1 Months Ended		12 Months Ended
	Dec. 31, 2014 USD ($)	Dec. 31, 2013 USD ($)	Feb. 29, 2012	Feb. 29, 2012 Agatha Christie Limited Company [Member] USD ($)	Feb. 29, 2012 Agatha Christie Limited Company [Member] GBP (£)	Dec. 31, 2014 Agatha Christie Limited Company [Member] USD ($) Novel Play TelevisionFilm	Dec. 31, 2013 Agatha Christie Limited Company [Member] USD ($)	Oct. 02, 2012 Acorn Media [Member] Agatha Christie Limited Company [Member] USD ($)	Feb. 29, 2012 Acorn Media [Member] Agatha Christie Limited Company [Member]
Business Acquisition [Line Items]
Number of novels and short story collections						80
Number of plays						19
Number of television films						100
Purchase consideration				$ 21,900,000	£ 13,700,000
Ownership interest in ACL (in hundredths)			64.00%						64.00%
Difference between carrying amount and underlying equity for ACL								18,700,000
A summary of the ACL investment account is as follows: [Abstract]
Investment at fair value						25,233,000	25,449,000
Share of income	2,580,000	3,296,000				3,169,000	3,834,000
Dividends received						(4,040,000)	(4,005,000)
Basis - difference amortization						(589,000)	(538,000)
Translation adjustment						(1,492,000)	493,000
Investment balance at end of period						22,281,000	25,233,000
Summarized financial information [Abstract]
Cash						4,107,000	3,683,000
Film costs						14,728,000	9,835,000
Other assets						10,322,000	8,294,000
Production obligation payable						(3,007,000)	0
Deferred revenues						(15,527,000)	(8,895,000)
Other liabilities						(2,147,000)	(2,396,000)
Equity						8,476,000	10,521,000
Revenues						13,460,000	36,976,000
Film cost amortization						(3,349,000)	(25,558,000)
General, administrative and other expenses						(3,542,000)	(3,307,000)
Income from operations						6,569,000	8,111,000
Net income						$ 4,939,000	$ 5,985,000

XML

FAIR VALUE MEASUREMENTS (Tables)

12 Months Ended

Dec. 31, 2014

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]

Fair Value, Liabilities Measured on Recurring Basis

The following tables represent the valuation of our warrant liability within the fair-value hierarchy:

(In thousands)	December 31, 2014
	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	601	$	601

(In thousands)	December 31, 2013
	Level 1		Level 2		Level 3		Total
Warrant liability	$	2,630	$	—	$	1,493	$	4,123

Fair value liabilities measured on recurring basis and roll forward

The following tables represent the valuation of our warrant liability within the fair-value hierarchy:

(In thousands)	December 31, 2014
	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	601	$	601

(In thousands)	December 31, 2013
	Level 1		Level 2		Level 3		Total
Warrant liability	$	2,630	$	—	$	1,493	$	4,123

The following tables include a roll-forward of the warrant liability activity classified within Level 1 and Level 3 of the fair-value hierarchy:

(In thousands)	Year Ended December 31, 2014
	Level 1			Level 2		Level 3			Total
Warrant liability at December 31, 2013	$	2,630		$	—	$	1,493		$	4,123
Change in fair-value hierarchy		(2,755	)		—		2,755			—
Change in fair value of warrant liability		125			—		(3,647	)		(3,522	)
Warrant liability at December 31, 2014	$	—		$	—	$	601		$	601

(In thousands)	Year Ended December 31, 2013
	Level 1			Level 2		Level 3			Total
Warrant liability at December 31, 2012	$	2,755		$	—	$	1,569		$	4,324
Change in fair value of warrant liability		(125	)		—		(76	)		(201	)
Warrant liability at December 31, 2013	$	2,630		$	—	$	1,493		$	4,123

Fair value, assets measured on nonrecurring basis

When events and circumstances indicate that investments in content are impaired, we determine the fair value of the investment; and if the fair value is less than the carrying amount, we recognize additional amortization expense equal to the excess.  Our nonrecurring fair value measurement information of assets and liabilities is classified in the tables below:

(In thousands)	Year Ended December 31, 2014
	Level 1		Level 2		Level 3		Total		Loss
Investments in content	$	—	$	—	$	21,804	$	21,804	$	4,817

(In thousands)	Year Ended December 31, 2013
	Level 1		Level 2		Level 3		Total		Loss
Investments in content	$	—	$	—	$	5,693	$	5,693	$	6,419

XML

INVESTMENTS IN CONTENT (Tables)

12 Months Ended

Dec. 31, 2014

INVESTMENTS IN CONTENT [Abstract]

Investment in Content

Investments in content are as follows:

	December 31,
(In thousands)	2014		2013
Released	$	57,766	$	66,527
Completed, not released		7,205		10,387
In-production		2,554		4,727
Investments in content, net	$	67,525	$	81,641

Future Amortization Expense for Investment in Content

Our estimated future amortization for investments in content is as follows:

(In thousands)
Period	Estimated Amortization		Percentage
1 Year	$	18,046		31.2	%
2 - 3 Years		22,102		38.3	%
4 - 5 Years		10,814		18.7	%
Thereafter		6,804		11.8	%
	$	57,766		100.0	%

XML

INVENTORIES (Details) (USD $)	3 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2014		Dec. 31, 2013
INVENTORIES [Abstract]
Packaged discs		$ 9,580,000		$ 11,340,000
Packaging materials		1,309,000		1,873,000
Other merchandise		2,140,000	[1]	2,376,000	[1]
Inventories		13,029,000		15,589,000
Obsolescence reserve		11,100,000		6,500,000
Impairment charges	$ 3,300,000	$ 2,400,000		$ 6,500,000

[1] Other merchandise consists of third-party products, primarily gifts, jewelry, and home accents.

XML

CUSTOMER RELATIONSHIP (Details) (USD $)	3 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2013
CUSTOMER RELATIONSHIP [Abstract]
Sales returns		$ 2,900,000
Decrease in gross margin		(1,300,000)
Non-cash charge due to termination of contract	4,600,000
Non-cash charge due to termination of contract, accumulated amortization	$ 603,000

XML

STOCK-BASED COMPENSATION (Details) (USD $)	12 Months Ended
	Dec. 31, 2014 Plan	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of equity compensation plans	1
Number of shares authorized (in shares)	1,244,153
Grant date fair value, Twelve month performance period, Maximum	$ 1,000,000
Grant date fair value, More than twelve month performance period, Maximum	2,000,000
Number of shares available for future grant (in shares)	787,668	883,259
Restricted Stock-Based Compensation Award Activity Weighted Average Grant Date Fair Value [Abstract]
Compensation expense	769,000	805,000
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term of award	10 years
Award vesting period	10 years
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)	750,000
Total fair value of shares granted	766,000	1,700,000
Restricted Stock-Based Compensation Award Activity [Roll Forward]
Granted (in shares)	190,280	323,316
Vested (in shares)	(182,206)
Forfeited (in shares)	(93,742)
Restricted Stock-Based Compensation Award Activity Weighted Average Grant Date Fair Value [Abstract]
Compensation expense	769,000	805,000
Unrecognized stock-based compensation expense	$ 504,000
Weighted average remaining vesting period for nonvested shares	9 months
Restricted Stock [Member] | Minimum [Member]
Restricted Stock-Based Compensation Award Activity Weighted Average Grant Date Fair Value [Abstract]
Granted (in dollars per share)	$ 3.49	$ 3.72
Restricted Stock [Member] | Maximum [Member]
Restricted Stock-Based Compensation Award Activity Weighted Average Grant Date Fair Value [Abstract]
Granted (in dollars per share)	$ 5.00	$ 5.97
Restricted Stock [Member] | Executive Officers and Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	3 years	3 years
Restricted Stock-Based Compensation Award Activity [Roll Forward]
Granted (in shares)	164,780	233,707
Restricted Stock [Member] | Management [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	1 year	1 year
Restricted Stock-Based Compensation Award Activity [Roll Forward]
Granted (in shares)	25,500	89,609
Restricted Stock, Service Shares [Member]
Restricted Stock-Based Compensation Award Activity [Roll Forward]
Non-vested shares at the beginning of the period (in shares)	188,000	38,000
Granted (in shares)	130,000	188,000
Vested (in shares)	(127,000)	(38,000)
Forfeited (in shares)	(12,000)	0
Non-vested shares at the end of the period (in shares)	179,000	188,000
Restricted Stock-Based Compensation Award Activity Weighted Average Grant Date Fair Value [Abstract]
Non-vested shares at the beginning of the period (in dollars per share)	$ 5.38	$ 7.98
Granted (in dollars per share)	$ 3.76	$ 5.38
Vested (in dollars per share)	$ 5.51	$ 7.98
Forfeited (in dollars per share)	$ 5.01	$ 0
Non-vested shares at the end of the period (in dollars per share)	$ 4.13	$ 5.38
Restricted Stock, Performance Shares [Member]
Restricted Stock-Based Compensation Award Activity [Roll Forward]
Non-vested shares at the beginning of the period (in shares)	135,000	0
Granted (in shares)	60,000	135,000
Vested (in shares)	(56,000)	0
Forfeited (in shares)	(83,000)	0
Non-vested shares at the end of the period (in shares)	56,000	135,000
Restricted Stock-Based Compensation Award Activity Weighted Average Grant Date Fair Value [Abstract]
Non-vested shares at the beginning of the period (in dollars per share)	$ 5.15	$ 0
Granted (in dollars per share)	$ 4.60	$ 5.15
Vested (in dollars per share)	$ 4.60	$ 0
Forfeited (in dollars per share)	$ 5.16	$ 0
Non-vested shares at the end of the period (in dollars per share)	$ 5.09	$ 5.15
Performance shares forfeited due to performance criteria (in shares)	65,297
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)	750,000
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)	750,000
Other Stock Based Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)	750,000

XML

DESCRIPTION OF BUSINESS (Details) (USD $)	12 Months Ended		0 Months Ended
	Dec. 31, 2014 Segment	Dec. 31, 2013	Apr. 15, 2015	Dec. 31, 2012	Feb. 29, 2012
Business Acquisition [Line Items]
Ownership interest in ACL (in hundredths)					64.00%
Number of reportable segments	3
Number of shares removed from unrestricted common stock (in shares)		898,438
Decrease in unrestricted weighted average shares outstanding (in shares)		898,438
Loss per share for unrestricted common stock prior to removal of founder shares (in dollars per share)		$ (2.30)
Loss per share for unrestricted common stock after removal of founder shares (in dollars per share)	$ (1.69)	$ (2.50)
Liquidity [Abstract]
Net cash provided by operating activities	$ (1,615,000)	$ 6,550,000
Net income (loss)	(21,200,000)	(31,077,000)
Cash balance	6,662,000	7,674,000		4,739,000
Term debt outstanding	80,913,000	76,264,000
Minimum cash balance required	3,500,000
Number of year applicable interest rate is reduced	2 years
Debt discount	4,500,000
Subsequent Event [Member]
Liquidity [Abstract]
Sale of stock (in shares)			15,000
Proceeds from sale of stock			15,000,000
Accelerated principle payment paid			10,000,000
Legal fees and expenses			1,000,000
Working capital			4,000,000
Agatha Christie Limited Company [Member]
Liquidity [Abstract]
Net cash provided by operating activities	$ 4,100,000
Acorn Media [Member] | Agatha Christie Limited Company [Member]
Business Acquisition [Line Items]
Ownership interest in ACL (in hundredths)					64.00%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements.  The significant areas requiring the use of management estimates are related to provisions for lower-of-cost or market inventory write-downs, accounts receivable allowances and provision for doubtful accounts and sales returns reserves, valuation of deferred taxes, valuation of warrants, goodwill impairments, and ultimate projected revenues of our film library, which impact amortization of investments in content and related impairment assessments.  Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ materially from those estimates.

Revenues and Receivables

Revenue Recognition

Revenue is recognized upon meeting the recognition requirements of the Financial Accounting Standards Board Accounting Standards Codification (or ASC) 926, Entertainment—Films (or ASC 926) and ASC 605, Revenue Recognition.  We generate our revenue primarily from the exploitation of acquired or produced content rights through various distribution channels.  The content is monetized in DVD format to wholesale, licensed to broadcasters including cable companies and digital platforms like Amazon and Netflix, and exploited through other windows including:  video-on-demand, direct-to-consumer, catalogs and subscription streaming channels.  Revenue is presented net of sales returns, rebates, unit price adjustments, sales return reserve, sales discounts and market development fund reserve.

Revenues from home video exploitation are recognized net of an allowance for estimated returns, as well as related costs, in the period in which the product is available for sale by our customers (at the point that title and risk of loss transfer to the customer, which is generally upon receipt by the customer and in the case of new releases, after “street date” restrictions lapse).  Rental revenues under revenue sharing arrangements are recognized when we are entitled to receipts and such receipts are determinable.  Revenues from domestic and international broadcast licensing and home video sublicensing, as well as associated costs, are recognized when the programming is available to the licensee and all other recognition requirements are met such as the broadcaster is free to air the programming.  Fees received in advance of availability, usually in the case of advances received from international home video sub-licensees and for broadcast programming, are deferred until earned and all revenue recognition requirements have been satisfied.  Provisions for sales returns and uncollectible accounts receivable are provided at the time of sale.

Revenues from our catalog sales are recognized net of an allowance for estimated returns once payment has been received from the customer and the item ordered has been shipped.  Revenues from our proprietary, subscription-based, streaming channels are recognized on a straight-line basis over the subscription period once the subscription has been activated.

Allowances for Sales Returns

For each reporting period, we evaluate product sales and accounts receivable to estimate their effect on revenues due to product returns, sales allowances and other credits given, and delinquent accounts.  Our estimates of product sales that will be returned and the amount of receivables that will ultimately be collected require the exercise of judgment and affect reported revenues and net earnings.  In determining the estimate of product sales that will be returned, we analyze historical returns (quantity of returns and time to receive returned product), historical pricing and other credit data, current economic trends, and changes in customer demand and acceptance of our products, including reorder activity.  Based on this information, we reserve a percentage of each dollar of product sales where the customer has the right to return such product and receive a credit.  Actual returns could differ from our estimates and current provisions for sales returns and allowances, resulting in future charges to earnings.  Estimates of future sales returns and other credits are subject to substantial uncertainty.  Factors that could negatively impact actual returns include retailer financial difficulties, the perception of comparatively poor retail performance in one or several retailer locations, limited retail shelf space at various times of the year, inadequate advertising or promotions, retail prices being too high for the perceived quality of the content or other comparable content, the near-term release of similar titles, and poor responses to package designs.  Underestimation of product sales returns and other credits would result in an overstatement of current revenues and lower revenues in future periods.  Conversely, overestimation of product sales returns would result in an understatement of current revenues and higher revenues in future periods.

Allowances Received From Vendors

In accordance with ASC 605-50, Revenue Recognition—Customer Payments and Incentives, we classify consideration received as a reduction in cost of sales in the accompanying statements of operations unless the consideration represents reimbursement of a specific, identifiable cost incurred by us in selling the vendor’s product.

Shipping Revenues and Expenses

In accordance with ASC 605-45, Revenue Recognition—Principal Agent Considerations, we classify amounts billed to customers for shipping fees as revenues, and classify costs related to shipping as cost of sales in the accompanying consolidated statements of operations.

Market Development Funds

In accordance with ASC 605-50, Revenue Recognition—Customer Payment and Incentives, market development funds, including funds for specific product positioning, taken as a deduction from payment for purchases by customers are classified as a reduction to revenues.

Investments in Content

Investments in content include the unamortized costs of completed films and television programs that were acquired or produced.  Within the carrying balance of investments in content are development and production costs for films and television programs which are acquired or produced.

Acquired Distribution Rights and Produced Content

Royalty and Distribution Fee Advances – Royalty and distribution fee advances represent fixed minimum payments made to program suppliers for exclusive content distribution rights.  A program supplier’s share of exclusive program distribution revenues is retained by us until the share equals the advance(s) paid to the program supplier plus recoupable costs.  Thereafter, any excess is paid to the program supplier.  In the event of an excess, we also record, as cost of sales, an amount equal to the program supplier’s share of the net distribution revenues.

Original Production Costs – For films and television programs produced by RLJE, original production costs include all direct production and financing costs, as well as production overhead.

Unamortized content investments are charged to cost of sales as revenues are earned in the same ratio that current period revenue for a title or group of titles bears to the estimated remaining unrecognized ultimate revenue for that title.

Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release, or for episodic television series a period not to exceed 10 years from the date of delivery of the first episode or, if still in production, five years from the date of delivery of the most recent episode, if later.

Investments in content are stated at the lower of amortized cost or estimated fair value. The valuation of investments in content is reviewed on a title-by-title basis, when an event or change in circumstances indicates that the fair value of a film or television program is less than its unamortized cost. Additional amortization is recorded in the amount by which the unamortized costs exceed the estimated fair value of the film or television program.  Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films and television programs may be required as a consequence of changes in management’s future revenue estimates.

Content programs in progress include the accumulated costs of productions, which have not yet been completed, and advances on content not yet received from program suppliers. We begin to amortize these investments once the content has been released.

Production Development Costs

The costs to produce licensed content for domestic and international exploitation include the cost of converting film prints or tapes into the optical disc format.  Depending on the platform for which the content is being exploited, costs may include menu design, authoring, compression, subtitling, closed captioning, service charges related to disc manufacturing, ancillary material production, product packaging design and related services.  These costs are capitalized as incurred. A percentage of the capitalized production costs are amortized to expense based upon:  (i) a projected revenue stream resulting from distribution of new and previously released content related to such production costs; and (ii) management’s estimate of the ultimate net realizable value of the production costs.  Estimates of future revenues are reviewed periodically and amortization of production costs is adjusted accordingly.  If estimated future revenues are not sufficient to recover the unamortized balance of production costs, such costs are reduced to their estimated fair value.

Inventories

For each reporting period, we review the value of inventories on hand to estimate the recoverability through future sales.  Values in excess of anticipated future sales are recorded as obsolescence reserve.  Inventories consist primarily of packaged goods for sale, which are stated at the lower-of-average-cost or market, as well as componentry.

Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of acquisition costs over the tangible and identifiable intangible assets acquired and liabilities assumed in a business acquisition.  Goodwill is recorded at our reporting units, which are consolidated into our reporting segments.  Goodwill is not amortized but is reviewed for impairment annually on October 1^st of each year or between the annual tests if an event occurs or circumstances change that indicates it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value.  The impairment test follows a two-step approach.  The first step determines if the goodwill is potentially impaired, and the second step measures the amount of the impairment loss, if necessary.  Under the first step, goodwill is considered potentially impaired if there are subjective characteristics that suggest that goodwill is impaired or quantitatively when the fair value of the reporting unit is less than the reporting unit’s carry amount, including goodwill.  Under the second step, the impairment loss is then measured as the excess of recorded goodwill over the fair value of the goodwill, as calculated.  Determining the fair value requires various assumptions and estimates, which include consideration of the future, projected operating results and cash flows. Such projections could be different than actual results. Should actual results be significantly less than estimates, the value of our goodwill could be impaired in future periods.

Other Intangible Assets

Other intangible assets are reported at their estimated fair value when acquired less accumulated amortization.  The majority of our intangible assets were recognized as a result of the Business Combination.  As such, the fair values of our intangibles were recorded in 2012 when applying purchase accounting.  Additions since the 2012 Business Combination are limited to website expenditures. Similar to how we account for internal-use software development, costs that are incurred to develop and implement our websites are capitalized in accordance with ASC 350-50, Website Development Costs.  Website operating costs are expensed as incurred.  Costs incurred for upgrades and enhancements that provide additional functionality are capitalized.

Amortization expense on our other intangible assets is generally computed by applying the straight-line method, or based on estimated forecasted future revenues as stated below, over the estimated useful lives of trade names (15 years), website (3 years), supplier contracts (7 years), customer relationships (five years), options on future content (7 years) and leases (2 years).  The recorded value of our customer relationships is amortized on an accelerated basis over five years, with approximately 60% being amortized over the first two years (through 2014), 20% during the third year and the balance ratably over the remaining useful life.  The recorded value of our options on future content is amortized based on forecasted future revenues, whereby approximately 50% is being amortized over the first two years (through 2014), 25% during the third year and the balance in decreasing amounts over the remaining four years.

Additional amortization expense is provided on an accelerated basis when the useful life of an intangible asset is determined to be less than originally expected.  Other intangible assets are reviewed for impairment when an event or circumstance indicates the fair value is lower than the current carrying value.

For all periods presented, we did not recognize any impairment on our other intangible assets.

Warrant Liability

We have warrants outstanding to purchase 21,041,667 shares of our common stock, which are recorded at fair value on the consolidated balance sheets (see Note 11, Stock Warrants).  All of the warrants contain a provision whereby the exercise price will be reduced if RLJE reorganized as a private company.  Because of this provision, all warrants are accounted for as a derivative liability in accordance with ASC 815-40, Contracts in Entity’s Own Equity.  The changes in the fair value of the warrants are recorded as a component of other income (expense).

Income Taxes

We account for income taxes pursuant to the provisions of ASC 740, Income Taxes (or ASC 740), whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and the future tax benefits derived from operating loss and tax credit carryforwards.  We provide a valuation allowance on our deferred tax assets when it is more likely than not that such deferred tax assets will not be realized. We have a valuation allowance against 99% and 100% of our net deferred tax assets at December 31, 2014 and 2013, respectively.

ASC 740 requires that we recognize in the consolidated financial statements the effect of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position.  The first step is to determine whether or not a tax benefit should be recognized.  A tax benefit will be recognized if the weight of available evidence indicates that the tax position is more likely than not to be sustained upon examination by the relevant tax authorities.  The recognition and measurement of benefits related to our tax positions requires significant judgment as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities.  Differences between actual results and our assumptions, or changes in our assumptions in future periods, are recorded in the period they become known.  For tax liabilities, we recognize accrued interest related to uncertain tax positions as a component of income tax expense, and penalties, if incurred, are recognized as a component of operating expense.

Our foreign subsidiaries are subject to income taxes in their respective countries, as well as U.S. Federal and state income taxes. The income tax payments they make outside the U.S. give rise to foreign tax credits that we may use to offset taxable income in the United States.

Foreign Currency Translation

The consolidated financial statements are presented in our company’s functional and reporting currency, which is the U.S. dollar. For the foreign subsidiaries whose functional currency is other than the U.S. dollar (the British Pound Sterling or GBP for RLJE U.K. and RLJE Ltd.; and Australian dollar for RLJE Australia), balance sheet accounts, other than equity accounts, are translated into U.S. dollars at exchange rates in effect at the end of the period and income statement accounts are translated at average monthly exchange rates. Equity accounts are translated at historical rates. Translation gains and losses are included as a separate component of equity. Gains and losses from foreign currency denominated transactions are included in the statement of operations as a component of other income (expense).

Fair Value of Financial Instruments

The carrying amount of our financial instruments, which principally include cash, trade receivables, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. The carrying amount of our debt and notes payable approximates fair value as the debt bears market interest rates of interest.  Our estimate of fair value is based on the recent refinancing of our notes.  We consider this assessment of fair value to be a Level 3 assessment.

ASC 820, Fair Value Measurements and Disclosures (or ASC 820), defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair-value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our recurring fair value measurements of financial assets and liabilities and our nonrecurring fair value measurements of assets and liabilities are disclosed in Note 14, Fair Value Measurements.

Concentrations of Credit Risk

Financial instruments which potentially subject RLJE to concentrations of credit risk consist primarily of deposit accounts and trade accounts receivable. RLJE maintains bank accounts at financial institutions, which at times may exceed amounts insured by the Federal Deposit Insurance Corporation (or FDIC) and Securities Investor Protection Corporation (or SIPC). We place our cash with several financial institutions which are reputable and therefore bear minimal credit risk. RLJE has never experienced any losses related to these balances.

With respect to trade receivables, we perform ongoing credit evaluations of our customers’ financial conditions and limit the amount of credit extended when deemed necessary but generally require no collateral.

Major Customers and Distribution Facilitators

We have a high concentration of net revenues from relatively few customers, the loss of which may adversely affect our liquidity, business, results of operations, and financial condition.  During 2014, our net revenues from Amazon accounted for 19.0% of our net revenues.  Our top five customers accounted for approximately 46.2% of our net revenues for the same period.  During 2013, Amazon and Entertainment One Films Canada accounted for approximately 13.6% and 10.3%, respectively, of our net revenues.  Our top five customers accounted for approximately 42.1% of our net revenues for 2013.

We may be unable to maintain favorable relationships with our retailers and distribution facilitators such as, Sony Pictures Home Entertainment (or SPHE) and Sony DADC UK Limited.  Further, our retailers and distribution facilitators may be adversely affected by economic conditions.  If we lose any of our top customers, or if any of these customers reduces or cancels a significant order, it could have a material adverse effect on our liquidity, business, results of operations, and financial condition.

Our high concentration of sales to relatively few customers (and use of a third-party to manage collection of substantially all packaged goods receivables) may result in significant uncollectible accounts receivable exposure, which may adversely affect our liquidity, business, results of operations, and financial condition.  As of December 31, 2014, SPHE and Netflix accounted for approximately 44.0% and 21.4%, respectively, of our gross accounts receivable.  At December 31, 2013, SPHE and Netflix accounted for approximately 43.8% and 17.3%, respectively, or our gross accounts receivable.

Property, Equipment and Improvements

Property, equipment and improvements are stated at cost less accumulated depreciation and amortization.  Major renewals and improvements are capitalized; minor replacements, maintenance and repairs are expensed as incurred.  Internal-use software development costs are capitalized if the costs were incurred while in the application development stage, or if the costs were for upgrades and enhancements that provide additional functionality.  Training and data-conversion costs are expensed as incurred.  We cease capitalizing software costs and start depreciating the software once the project is substantially complete and ready for its intended use.

Depreciation and amortization are computed by applying the straight-line method over the estimated useful lives of the furniture, fixtures and equipment (3-7 years), and software (3 years).  Leasehold improvements are amortized over the shorter of the useful life (10 years) of the improvement or the life of the related leases.

Impairment of Long-Lived Assets

We review long-lived and specific, definite-lived, identifiable intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  An impairment loss of the excess of the carrying value over fair value would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount.  We have no intangible assets with indefinite useful lives.

Leases

We lease all of the office space utilized for our operations.  All of our leases are operating leases in nature.  A majority of our leases have fixed incremental increases over the lease terms, which are recognized on a straight-line basis over the term of the lease.

Equity Method Investments

We use the equity method of accounting for investments in companies in which we do not have voting control but where we do have the ability to exert significant influence over operating decisions of the companies.  Our equity method investments are periodically reviewed to determine whether there has been a loss in value that is other than a temporary decline.

Debt Discounts

The difference between the principal amount of our debt and the amount recorded as the liability represents a debt discount. The carrying amount of the liability is accreted up to the principal amount through the amortization of the discount, using the effective interest method, to interest expense over the expected term of the debt.

Advertising Costs

Our advertising expense consists of expenditures related to advertising in trade and consumer publications, product brochures and catalogs, booklets for sales promotion, radio advertising and other promotional costs.  In accordance with ASC 720-35, Other Expenses—Advertising Costs, and ASC 340-20, Other Assets and Deferred Costs—Capitalized Advertising Costs, we expense advertising costs in the period in which the advertisement first takes place.  Product brochures and catalogs and various other promotional costs are capitalized and amortized over the expected period of future benefit, but generally not exceeding six months.  Advertising and promotion expense are included as a component of selling expenses.  For the years ended December 31, 2014 and 2013, advertising expense was $3.3 million and $3.4 million, respectively.

Stock Options and Restricted Stock Awards

We expense our stock-based awards in accordance with ASC 718, Compensation—Stock Compensation (or ASC 718).  ASC 718 establishes standards with respect to the accounting for transactions in which an entity exchanges its equity instruments for goods or services, or incurs liabilities in exchange for goods or services, that are based on the fair value of the entity’s equity instruments, focusing primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  ASC 718 requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions) and recognize the cost over the period during which an employee is required to provide service in exchange for the award.  Expense recognized is reduced by estimated forfeitures.

Earnings/Loss per Share

Basic earnings/loss per share is computed using the weighted-average number of common shares outstanding during the period.  Diluted earnings per share are computed using the combination of dilutive common share equivalents and the weighted-average shares outstanding during the period.  For the periods reporting a net loss, diluted loss per share is equivalent to basic loss per share, as inclusion of common share equivalents would be anti-dilutive.

Recently Issued Accounting Standards

On May 28, 2014, the Financial Accounting Standards Board issued accounting standard update (or ASU) No. 2014-09, Revenue from Contracts with Customers (or ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for RLJE on January 1, 2017. Early application is not permitted. The standard permits the use of one of three transition methods. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We are also assessing the transition methods available to implement this new accounting standard.  This update could impact the timing and amounts of revenue recognized within our consolidated financial statements.

On August 27, 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (or ASU 2014-09), which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.  This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.  Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures.We will adopt this ASU beginning with annual period ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016.  Upon adoption, we will begin evaluating going concern under this guidance.

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FAIR VALUE MEASUREMENTS (Details) (USD $)	3 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
(Loss)		$ 4,817,000	$ 6,419,000
Impairment charges	1,500,000	4,800,000	6,400,000
Recurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability		601,000	4,123,000	4,324,000
Recurring [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability		0	2,630,000	2,755,000
Recurring [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability		0	0	0
Recurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability		601,000	1,493,000	1,569,000
Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments in content		21,804,000	5,693,000
Nonrecurring [Member] | Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments in content		0	0
Nonrecurring [Member] | Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments in content		0	0
Nonrecurring [Member] | Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments in content		$ 21,804,000	$ 5,693,000

XML

NET INCOME (LOSS) PER COMMON SHARE DATA (Tables)

12 Months Ended

Dec. 31, 2014

NET INCOME (LOSS) PER COMMON SHARE DATA [Abstract]

Reconciliation of Numerators and Denominators Used in Computing Basic and Diluted Net Income (loss) per Common Share

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per common share for the years ended December 31, 2014 and 2013:

(In thousands, except per share data)	Years Ended December 31,
	2014			2013
Basic and diluted:
Net loss	$	(21,200	)	$	(31,077	)
Denominator - basic and diluted:
Weighted-average common shares outstanding – basic		12,532			12,447
Effect of dilutive securities		—			—
Weighted-average common shares outstanding – diluted		12,532			12,447
Net loss per common share:
Basic and diluted	$	(1.69	)	$	(2.50	)

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2014

RELATED PARTY TRANSACTIONS [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 22. RELATED PARTY TRANSACTIONS

Equity Investments in Affiliates

All of ACL’s staff is employed by RLJE Ltd.  ACL was charged overhead and personnel costs for the years ended December 31, 2014 and 2013, of approximately $2.3 million and $2.1 million, respectively.

ACL paid dividends to RLJE Ltd. of $4.0 million and $4.0 million during the years ended December 31, 2014 and 2013, respectively.  Dividends received were recorded as a reduction to the ACL investment account.

Foreign Currency

We recognize foreign currency gains and losses, as a component of other expense, on amounts lent by Acorn Media to RLJE Ltd. and RLJE Australia.  As of December 31, 2014, Acorn Media had lent its U.K. subsidiaries approximately $15.5 million and its Australian subsidiary approximately $3.6 million.   Amounts lent will be repaid in U.S. dollars based on available cash. Movement in exchange rates between the U.S. dollar and the functional currencies (which are the British Pound Sterling and the Australian dollar) of those subsidiaries that were lent the monies will result in foreign currency gains and losses.  During the years ended December 31, 2014 and 2013, we recognized a loss of $1.1 million and $484,000, respectively.

The RLJ Companies, LLC

On June 27, 2013, The RLJ Companies, LLC (whose sole manager and voting member is the chairman of our board of directors) purchased from one of our vendors $3.5 million of contract obligations that we owed to the vendor.  These obligation were payable by us to the vendor through September 5, 2013.  Pursuant to the purchase, The RLJ Companies, LLC has become the account creditor with respect to these accounts.  These accounts have not been otherwise modified.  These purchased liabilities are included in accrued royalties and distribution fees in the accompanying consolidated balance sheets for 2014 and 2013.

RLJ SPAC Acquisition, LLC

Our chairman of our board of directors (Mr. Robert L. Johnson) through his company, RLJ SPAC Acquisition, LLC, has entered into a plan to purchase up to $2.0 million of our outstanding common stock from time to time over a 24-month period beginning June 19, 2013. Any purchases under the plan will be at the discretion of Lazard Capital Markets LLC in the open market or in privately negotiated transactions in compliance with applicable laws and regulations.

All $2.0 million of Common Stock may not be purchased during the 24-month period.  The Plan may be terminated by Mr. Johnson at any time.

During 2014 and 2013, RLJ SPAC Acquisition LLC purchased 128,665 and 232,531 shares, respectively.

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2014

COMMITMENTS AND CONTINGENCIES [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 21. COMMITMENTS AND CONTINGENCIES

Operating Leases

RLJE’s principal executive office is located in Silver Spring, Maryland.  We also maintain offices in Woodland Hills, California; Stillwater, Minnesota; London, England and Sydney, Australia with varying terms and expiration dates.  All locations are leased.  A summary of our locations is as follows:

Location	Primary Purpose	Lease Expiration	Reporting Segment (1)
Silver Spring, MD	Executive Office/Administrative/Sales/ Content Acquisition	November 15, 2020	Corporate
Woodland Hills, CA	Administrative/Sales/Content Acquisition	June 30, 2021	Wholesale
Stillwater, MN	Sales and Administration for Direct-to-Consumer	April 30, 2022	Direct-to-Consumer
London, England	Content Development and Production/Sales/ Administration for the U.K., including ACL	July 1, 2018	IP Licensing/Wholesale/ Direct-to-Consumer
Sydney, Australia	Sales/Administration	March 1, 2017	Wholesale

⁽¹⁾ The segment descriptions above reflect the location’s primary activity.

Future minimum annual rental payments by year under operating leases at December 31, 2014, are approximately as follows:

(In thousands)
Year Ended December 31,	Lease Commitment
2015	$	1,164
2016		1,166
2017		1,191
2018		1,056
2019		878
Thereafter		1,181
	$	6,636

Rent expense was $2.0 million and 1.4 million, for the years ended December 31, 2014 and 2013, respectively.

Employment Agreements

At December 31, 2014, our future contractual obligations under four employment agreements are summarized below.  Included in the amounts below are any minimum bonus or agreed-upon amounts to be paid within the employment contracts over the next five years as long as the employee continues to be an employee in good standing and meets the performance criteria within the individual employment agreements.  One of the four employment agreements does not have an expiration date and is included in each of the five years presented below.

(In thousands)
Year Ended December 31,	Employment Contracts
2015	$	1,683
2016		983
2017		750
2018		750
2019		750
	$	4,916

Future Royalty Obligations

At December 31, 2014, our future obligations for royalty advances, minimum royalty guarantees and exclusive distribution fee guarantees under the terms of our existing licenses and exclusive distribution agreements that have an off balance sheet commitment total $7.1 million.  These commitments will be recognized in 2015 within our consolidated financial statements upon the earlier of payment or upon delivery of content by the content supplier.

Legal Proceedings

In the normal course of business, we are subject to proceedings, lawsuits and other claims, including proceedings under government laws and regulations relating to content ownership and copyright matters.  While it is not possible to predict the outcome of these matters, it is the opinion of management, based on consultations with legal counsel, that the ultimate disposition of known proceedings will not have a material adverse impact on our financial position, results of operations or liquidity.

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DEBT, LONG TERM DEBT (Details) (USD $)	0 Months Ended	12 Months Ended		3 Months Ended
	Oct. 31, 2013	Dec. 31, 2013	Dec. 31, 2014	Jun. 30, 2014	Oct. 31, 2012
Debt Instrument [Line Items]
Principal balance outstanding			$ 85,422,000
Less: debt discount			(4,500,000)
Debt, net of discount		76,264,000	80,913,000
Debt		77,558,000	80,913,000
War 9 Production Ltd [Member] | Facility [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)	2.15%
Basis spread on variable rate (in hundredths)	2.15%
Term Loan - A [Member]
Debt Instrument [Line Items]
Maturity Date		Oct. 03, 2017
Principal balance outstanding		20,476,000
Term Loan - A [Member] | Prime or LIBOR [Member] | Minimum [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)		4.50%
Basis spread on variable rate (in hundredths)		4.50%
Term Loan - A [Member] | Prime or LIBOR [Member] | Maximum [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)		5.50%
Basis spread on variable rate (in hundredths)		5.50%
Term Loan - B [Member]
Debt Instrument [Line Items]
Maturity Date		Apr. 03, 2018
Principal balance outstanding		12,287,000
Term Loan - B [Member] | Prime or LIBOR [Member] | Minimum [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)		6.25%
Basis spread on variable rate (in hundredths)		6.25%
Term Loan - B [Member] | Prime or LIBOR [Member] | Maximum [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)		7.25%
Basis spread on variable rate (in hundredths)		7.25%
Term Loan - C [Member]
Debt Instrument [Line Items]
Maturity Date		Apr. 03, 2018
Principal balance outstanding		15,517,000
Term Loan - C [Member] | Prime or LIBOR [Member] | Minimum [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)		9.25%
Basis spread on variable rate (in hundredths)		9.25%
Term Loan - C [Member] | Prime or LIBOR [Member] | Maximum [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)		10.25%
Basis spread on variable rate (in hundredths)		10.25%
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Maturity Date		Oct. 03, 2017
Revolving credit facility		14,949,000
Revolving Credit Facility [Member] | Prime [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)		5.00%
Basis spread on variable rate (in hundredths)		5.00%
Revolving Credit Facility [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)		6.00%
Basis spread on variable rate (in hundredths)		6.00%
Senior Notes [Member]
Debt Instrument [Line Items]
Maturity Date			Sep. 11, 2019
Principal balance outstanding		48,280,000	69,388,000
Less: debt discount		(2,007,000)	(4,509,000)
Total senior-term notes, net of discount		46,273,000	64,879,000
Senior note debt service			5,300,000
Senior Notes [Member] | LIBOR [Member] | Minimum [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)			9.90%
Basis spread on variable rate (in hundredths)			9.90%
Senior Notes [Member] | LIBOR [Member] | Maximum [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)			10.64%
Basis spread on variable rate (in hundredths)			10.64%
Subordinated Notes Payable to Prior Image Shareholders [Member]
Debt Instrument [Line Items]
Maturity Date		Oct. 03, 2018	Oct. 03, 2018
Stated interest rate (in hundredths)		12.00%	12.00%
Principal balance outstanding					14,800,000
Subordinated notes payable		15,042,000	16,034,000
Stated cash interest rate (in hundredths)			5.40%
Interest expense				1,800,000
Increase in principal balance for accrued interest				992,000
Subordinated Production Loan - Foyle's War [Member]
Debt Instrument [Line Items]
Maturity Date		Nov. 08, 2014
Subordinated notes payable		$ 1,294,000
Subordinated Production Loan - Foyle's War [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Basis spread on variable rate (in hundredths)		2.15%
Basis spread on variable rate (in hundredths)		2.15%

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2014

INCOME TAXES [Abstract]

Components of Income Tax Expense

Income tax expense is summarized below:

(In thousands)	Years Ended December 31,
	2014			2013
Current
Federal	$	—		$	—
State		66			72
Foreign		145			665
		211			737
Deferred
Federal		(302	)		580
State		22			94
Foreign		468			790
		188			1,464
Total Tax Expense	$	399		$	2,201

Income before Income Tax, Domestic and Foreign

Income before provision for income taxes is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Domestic	$	(22,711	)	$	(33,778	)
Foreign		1,910			4,902
	$	(20,801	)	$	(28,876	)

Deferred Tax Assets and Liabilities

The tax effects of temporary differences that give rise to a significant portion of the net deferred tax assets and liabilities at are presented below:

	Years Ended December 31,
(In thousands)	2014						2013
	U.S. Federal and State			Foreign			U.S. Federal and State			Foreign
Deferred tax assets:
Provision for lower of cost or market inventory write-downs	$	4,232		$	—		$	5,174		$	—
Net operating loss carryforwards		25,173			416			18,359			—
Allowance for sales returns		1,208			—			1,166			—
Allowance for doubtful accounts receivable		12			—			—			—
Marketing discounts and price protection reserves		2,559			—			1,559			—
Accrued compensation and benefits		173			—			298			—
Tax credits carryforwards		4,156			—			1,980			—
Other		371			13			353			—
Deferred tax assets		37,884			429			28,889			—
Less valuation allowance		(35,837	)		(416	)		(27,047	)		—
Deferred tax assets		2,047			13			1,842			—
Deferred tax liabilities:
Intangible assets		—			—			(1,409	)		—
Warrant liability		(1,625	)		—			(308	)		—
Goodwill amortization		(833	)		—			(674	)		—
Equity income in ACL		—			(1,604	)		—			(1,140	)
Other		—			—			(125	)		—
Deferred tax liabilities		(2,458	)		(1,604	)		(2,516	)		(1,140	)
Net deferred tax assets and liabilities	$	(411	)	$	(1,591	)	$	(674	)	$	(1,140	)

Effective Income Tax Rate Reconciliation

A reconciliation of income tax benefit based on the federal statutory rate to actual income tax expense (benefit) is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Expected income tax benefit - 34%	$	(7,072	)	$	(9,818	)
Income not subject to income tax		—			(1,499	)
State income taxes, net of federal benefit		66			73
Non-deductible expenses		93			85
Change in valuation allowance		9,206			13,406
Change in prior year deferred tax allowance		(671	)		—
Foreign income taxes		145			—
Foreign tax credit		(1,132	)		—
Other		(236	)		(46	)
Total tax expense	$	399		$	2,201

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SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2014

SUBSEQUENT EVENTS [Abstract]

SUBSEQUENT EVENTS

NOTE 23. SUBSEQUENT EVENTS

On April 15, 2015, we sold to a company owned by Robert L. Johnson, the Company’s chairman, 15,000 shares of Bridge Preferred Stock for $15.0 million in cash.  The rights of the Bridge Preferred Stock include a preference on any dividends paid, limited voting rights related to any amendment to the Bridge Preferred Stock, a liquidation preference of $1,000 per share, negative covenants with respect to certain events and a redemption right at 130% of the liquidation preference upon certain defaults or a change in control.

The Company used $10.0 million of the net proceeds from this sale to make a partial payment on its Credit Agreement and approximately $1.0 million for prepayment penalties, legal fees and expenses associated with the transaction.  The balance of the net proceeds is intended to be used for working capital purposes.

In connection with the sale of the Bridge Preferred Stock, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with  Mr. Johnson’s company.  Pursuant to the terms of the Purchase Agreement, if convertible preferred stock is issued to a third party within 60 days after the sale to Mr. Johnson’s company of the Bridge Preferred Stock, concurrently with the closing on the sale of convertible preferred stock to such third party, each holder of Bridge Preferred Stock is required to exchange its shares of Bridge Preferred Stock for the number of shares of convertible preferred stock that is equal in liquidation value to the purchase price paid by such holder for Bridge Preferred Stock and would receive the same rights and benefits as the other investors in the convertible preferred stock, including the issuance of warrants. If convertible preferred stock is not issued to a third party within 60 days after the sale to Mr. Johnson’s company of the Bridge Preferred Stock, promptly following such date, each holder of Bridge Preferred Stock is required to exchange its shares of Bridge Preferred Stock for the number of shares of convertible preferred stock that is equal in liquidation value to the purchase price paid by such holder for Bridge Preferred Stock pursuant to the terms of the last convertible preferred stock term sheet offered by the Company to a third party and would receive the same rights and benefits as set forth in such last term sheet, including the issuance of warrants. The conversion of such convertible preferred stock into, and the exercise of such warrants for, shares of the Company’s common stock would be subject to the approval of the stockholders of the Company.

The Company is currently seeking to complete a private placement of between $15 million and $30 million of preferred stock convertible into the Company’s common stock to selected institutional investors (including the contemplated exchange with Mr. Johnson’s company). Such convertible preferred stock  will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.  In connection with this placement, the Company has received a non-binding term sheet from a third party to purchase for cash $4,000,000 in liquidation value of convertible preferred stock and warrants to purchase common stock. The non-binding term sheet contemplates that the convertible preferred stock would:

Bear an 8% annual dividend, payable in kind for the first two years and thereafter payable quarterly in cash or freely-trading common stock, at the Company’s option. If common stock were used for the payment, it would be valued at 80% of the market price.

Be convertible into common stock at an initial conversion price of $1.00 per share, subject to anti-dilution adjustment.

Be subject to mandatory redemption on the fifth anniversary of the issuance date. The Company would be able to redeem with either cash or freely-tradable common stock. If common stock is used for the redemption, it would be valued at 80% of the market price.

The term sheet further contemplates the issuance of warrants to purchase an aggregate number of shares of common stock equal to 30% of the number of shares into which the convertible preferred stock is convertible on the date of issuance thereof. The Warrants would have a five year term and would have an exercise price of $1.50 per share, subject to anti-dilution adjustment. Investors in the convertible preferred stock also would receive certain other customary rights, including registration rights and anti-dilution protection.

The conversion of the convertible preferred stock into, and the exercise of the warrants for, shares of the Company’s common stock would be subject to the approval of the stockholders of the Company. The Company would hold a special meeting seeking stockholders approval no later than July 31, 2015. Prior to the closing on the issuance of the convertible preferred stock, the Company would be required to obtain proxies from directors, executive officers and greater than 5% stockholders holding at least 50% of the outstanding shares to vote in favor of the issuance of the convertible preferred stock and the warrants.

There is no assurance that the transaction set forth in the term sheet will be completed, that the terms of the actual issuance will not materially vary from the terms set forth in the term sheet or that the Company will be successful in obtaining other investors in the convertible preferred stock.

Debt Amendments

Concurrently with the sale of the Bridge Preferred Stock, the Company also entered into (a) an amendment (the “Senior Credit Facility Amendment”) to the Credit Agreement between the Company and its lenders, and (b) an amendment (the “Note Amendment”) with the holders of certain subordinated notes (the “Subordinated Note Holders”).

The principal terms of the Credit Agreement Amendment are as follows:

(a) a waiver of certain Defaults (as defined in the Credit Agreement) and Events of Default (as defined in the Credit Agreement) caused by, or that would be caused by the breach of certain financial covenants under the senior Credit Agreement;

(b) amendments of the Credit Agreement (i) modifying the interest rate to equal LIBOR plus 10.64%, (ii) modifying certain financial statement and other reporting and lender communication requirements, (iii) changing the Fixed Charge Coverage Ratio (as defined in the Credit Agreement) threshold to 0.73:1.00 for the quarter ending March 31, 2015, and 0.63:1.00 for the quarter ending June 30, 2015, (iv) changing the Senior Leverage Ratio (as defined in the Credit Agreement) limit to 7.50:1.00 for the quarter ending March 31, 2015, and 6.92:1.00 for the quarter ending June 30, 2015, (v) changing the Total Leverage Ratio (as defined in the Credit Agreement) limit to 9:00:1:00 for the quarter ending March 31, 2015, and 8.95:1.00 for the quarter ending June 30, 2015, and (vi) changing the Minimum Cash Balance (as defined in the Credit Agreement) that the Company is required to maintain to $1 million; and

(c) the consent of the lenders to the issuance of the Bridge Preferred Stock and the convertible preferred stock, which is anticipated to be issued in exchange for the Bridge Preferred Stock, as well as the use of the proceeds from the issuance of the Bridge Preferred Stock and the convertible preferred stock (i) to pay $10 million of the amounts outstanding pursuant to the Credit Agreement, (ii) to pay certain fees and costs associated with the issuance of the Bridge Preferred Stock and the convertible preferred stock, and (iii) for working capital purposes.

The principal terms of the Note Amendment are as follows:

(a) an agreement by the Subordinated Note Holders to convert 50% of the outstanding balance under the subordinated notes into the convertible preferred stock with rights and preferences equal to those of the Bridge Preferred Stock;

(b) amendments to the subordinated notes (i) changing the interest rate payable from 12% to 1.5% per annum for the 24-month period commencing on January 1, 2015, and then 12% per annum thereafter; and (ii) specifying that 45% of the interest due will be payable in cash and the remainder of the accrued interest will be payable in the form of additional subordinated notes; and

(c) a waiver of any existing defaults and events of default.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2014

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]

Use of Estimates

Use of Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements.  The significant areas requiring the use of management estimates are related to provisions for lower-of-cost or market inventory write-downs, accounts receivable allowances and provision for doubtful accounts and sales returns reserves, valuation of deferred taxes, valuation of warrants, goodwill impairments, and ultimate projected revenues of our film library, which impact amortization of investments in content and related impairment assessments.  Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ materially from those estimates.

Revenues and Receivables

Revenues and Receivables

Revenue Recognition

Revenue is recognized upon meeting the recognition requirements of the Financial Accounting Standards Board Accounting Standards Codification (or ASC) 926, Entertainment—Films (or ASC 926) and ASC 605, Revenue Recognition.  We generate our revenue primarily from the exploitation of acquired or produced content rights through various distribution channels.  The content is monetized in DVD format to wholesale, licensed to broadcasters including cable companies and digital platforms like Amazon and Netflix, and exploited through other windows including:  video-on-demand, direct-to-consumer, catalogs and subscription streaming channels.  Revenue is presented net of sales returns, rebates, unit price adjustments, sales return reserve, sales discounts and market development fund reserve.

Revenues from home video exploitation are recognized net of an allowance for estimated returns, as well as related costs, in the period in which the product is available for sale by our customers (at the point that title and risk of loss transfer to the customer, which is generally upon receipt by the customer and in the case of new releases, after “street date” restrictions lapse).  Rental revenues under revenue sharing arrangements are recognized when we are entitled to receipts and such receipts are determinable.  Revenues from domestic and international broadcast licensing and home video sublicensing, as well as associated costs, are recognized when the programming is available to the licensee and all other recognition requirements are met such as the broadcaster is free to air the programming.  Fees received in advance of availability, usually in the case of advances received from international home video sub-licensees and for broadcast programming, are deferred until earned and all revenue recognition requirements have been satisfied.  Provisions for sales returns and uncollectible accounts receivable are provided at the time of sale.

Revenues from our catalog sales are recognized net of an allowance for estimated returns once payment has been received from the customer and the item ordered has been shipped.  Revenues from our proprietary, subscription-based, streaming channels are recognized on a straight-line basis over the subscription period once the subscription has been activated.

Allowances for Sales Returns

For each reporting period, we evaluate product sales and accounts receivable to estimate their effect on revenues due to product returns, sales allowances and other credits given, and delinquent accounts.  Our estimates of product sales that will be returned and the amount of receivables that will ultimately be collected require the exercise of judgment and affect reported revenues and net earnings.  In determining the estimate of product sales that will be returned, we analyze historical returns (quantity of returns and time to receive returned product), historical pricing and other credit data, current economic trends, and changes in customer demand and acceptance of our products, including reorder activity.  Based on this information, we reserve a percentage of each dollar of product sales where the customer has the right to return such product and receive a credit.  Actual returns could differ from our estimates and current provisions for sales returns and allowances, resulting in future charges to earnings.  Estimates of future sales returns and other credits are subject to substantial uncertainty.  Factors that could negatively impact actual returns include retailer financial difficulties, the perception of comparatively poor retail performance in one or several retailer locations, limited retail shelf space at various times of the year, inadequate advertising or promotions, retail prices being too high for the perceived quality of the content or other comparable content, the near-term release of similar titles, and poor responses to package designs.  Underestimation of product sales returns and other credits would result in an overstatement of current revenues and lower revenues in future periods.  Conversely, overestimation of product sales returns would result in an understatement of current revenues and higher revenues in future periods.

Allowances Received From Vendors

In accordance with ASC 605-50, Revenue Recognition—Customer Payments and Incentives, we classify consideration received as a reduction in cost of sales in the accompanying statements of operations unless the consideration represents reimbursement of a specific, identifiable cost incurred by us in selling the vendor’s product.

Shipping Revenues and Expenses

In accordance with ASC 605-45, Revenue Recognition—Principal Agent Considerations, we classify amounts billed to customers for shipping fees as revenues, and classify costs related to shipping as cost of sales in the accompanying consolidated statements of operations.

Market Development Funds

In accordance with ASC 605-50, Revenue Recognition—Customer Payment and Incentives, market development funds, including funds for specific product positioning, taken as a deduction from payment for purchases by customers are classified as a reduction to revenues.

Investments in Content

Investments in Content

Investments in content include the unamortized costs of completed films and television programs that were acquired or produced.  Within the carrying balance of investments in content are development and production costs for films and television programs which are acquired or produced.

Acquired Distribution Rights and Produced Content

Royalty and Distribution Fee Advances – Royalty and distribution fee advances represent fixed minimum payments made to program suppliers for exclusive content distribution rights.  A program supplier’s share of exclusive program distribution revenues is retained by us until the share equals the advance(s) paid to the program supplier plus recoupable costs.  Thereafter, any excess is paid to the program supplier.  In the event of an excess, we also record, as cost of sales, an amount equal to the program supplier’s share of the net distribution revenues.

Original Production Costs – For films and television programs produced by RLJE, original production costs include all direct production and financing costs, as well as production overhead.

Unamortized content investments are charged to cost of sales as revenues are earned in the same ratio that current period revenue for a title or group of titles bears to the estimated remaining unrecognized ultimate revenue for that title.

Ultimate revenue includes estimates over a period not to exceed ten years following the date of initial release, or for episodic television series a period not to exceed 10 years from the date of delivery of the first episode or, if still in production, five years from the date of delivery of the most recent episode, if later.

Investments in content are stated at the lower of amortized cost or estimated fair value. The valuation of investments in content is reviewed on a title-by-title basis, when an event or change in circumstances indicates that the fair value of a film or television program is less than its unamortized cost. Additional amortization is recorded in the amount by which the unamortized costs exceed the estimated fair value of the film or television program.  Estimates of future revenue involve measurement uncertainty and it is therefore possible that reductions in the carrying value of investment in films and television programs may be required as a consequence of changes in management’s future revenue estimates.

Content programs in progress include the accumulated costs of productions, which have not yet been completed, and advances on content not yet received from program suppliers. We begin to amortize these investments once the content has been released.

Production Development Costs

The costs to produce licensed content for domestic and international exploitation include the cost of converting film prints or tapes into the optical disc format.  Depending on the platform for which the content is being exploited, costs may include menu design, authoring, compression, subtitling, closed captioning, service charges related to disc manufacturing, ancillary material production, product packaging design and related services.  These costs are capitalized as incurred. A percentage of the capitalized production costs are amortized to expense based upon:  (i) a projected revenue stream resulting from distribution of new and previously released content related to such production costs; and (ii) management’s estimate of the ultimate net realizable value of the production costs.  Estimates of future revenues are reviewed periodically and amortization of production costs is adjusted accordingly.  If estimated future revenues are not sufficient to recover the unamortized balance of production costs, such costs are reduced to their estimated fair value.

Inventories

Inventories

For each reporting period, we review the value of inventories on hand to estimate the recoverability through future sales.  Values in excess of anticipated future sales are recorded as obsolescence reserve.  Inventories consist primarily of packaged goods for sale, which are stated at the lower-of-average-cost or market, as well as componentry.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Goodwill

Goodwill represents the excess of acquisition costs over the tangible and identifiable intangible assets acquired and liabilities assumed in a business acquisition.  Goodwill is recorded at our reporting units, which are consolidated into our reporting segments.  Goodwill is not amortized but is reviewed for impairment annually on October 1^st of each year or between the annual tests if an event occurs or circumstances change that indicates it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value.  The impairment test follows a two-step approach.  The first step determines if the goodwill is potentially impaired, and the second step measures the amount of the impairment loss, if necessary.  Under the first step, goodwill is considered potentially impaired if there are subjective characteristics that suggest that goodwill is impaired or quantitatively when the fair value of the reporting unit is less than the reporting unit’s carry amount, including goodwill.  Under the second step, the impairment loss is then measured as the excess of recorded goodwill over the fair value of the goodwill, as calculated.  Determining the fair value requires various assumptions and estimates, which include consideration of the future, projected operating results and cash flows. Such projections could be different than actual results. Should actual results be significantly less than estimates, the value of our goodwill could be impaired in future periods.

Other Intangible Assets

Other intangible assets are reported at their estimated fair value when acquired less accumulated amortization.  The majority of our intangible assets were recognized as a result of the Business Combination.  As such, the fair values of our intangibles were recorded in 2012 when applying purchase accounting.  Additions since the 2012 Business Combination are limited to website expenditures. Similar to how we account for internal-use software development, costs that are incurred to develop and implement our websites are capitalized in accordance with ASC 350-50, Website Development Costs.  Website operating costs are expensed as incurred.  Costs incurred for upgrades and enhancements that provide additional functionality are capitalized.

Amortization expense on our other intangible assets is generally computed by applying the straight-line method, or based on estimated forecasted future revenues as stated below, over the estimated useful lives of trade names (15 years), website (3 years), supplier contracts (7 years), customer relationships (five years), options on future content (7 years) and leases (2 years).  The recorded value of our customer relationships is amortized on an accelerated basis over five years, with approximately 60% being amortized over the first two years (through 2014), 20% during the third year and the balance ratably over the remaining useful life.  The recorded value of our options on future content is amortized based on forecasted future revenues, whereby approximately 50% is being amortized over the first two years (through 2014), 25% during the third year and the balance in decreasing amounts over the remaining four years.

Additional amortization expense is provided on an accelerated basis when the useful life of an intangible asset is determined to be less than originally expected.  Other intangible assets are reviewed for impairment when an event or circumstance indicates the fair value is lower than the current carrying value.

For all periods presented, we did not recognize any impairment on our other intangible assets.

Warrant Liability

Warrant Liability

We have warrants outstanding to purchase 21,041,667 shares of our common stock, which are recorded at fair value on the consolidated balance sheets (see Note 11, Stock Warrants).  All of the warrants contain a provision whereby the exercise price will be reduced if RLJE reorganized as a private company.  Because of this provision, all warrants are accounted for as a derivative liability in accordance with ASC 815-40, Contracts in Entity’s Own Equity.  The changes in the fair value of the warrants are recorded as a component of other income (expense).

Income Taxes

Income Taxes

We account for income taxes pursuant to the provisions of ASC 740, Income Taxes (or ASC 740), whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and the future tax benefits derived from operating loss and tax credit carryforwards.  We provide a valuation allowance on our deferred tax assets when it is more likely than not that such deferred tax assets will not be realized. We have a valuation allowance against 99% and 100% of our net deferred tax assets at December 31, 2014 and 2013, respectively.

ASC 740 requires that we recognize in the consolidated financial statements the effect of a tax position that is more likely than not to be sustained upon examination based on the technical merits of the position.  The first step is to determine whether or not a tax benefit should be recognized.  A tax benefit will be recognized if the weight of available evidence indicates that the tax position is more likely than not to be sustained upon examination by the relevant tax authorities.  The recognition and measurement of benefits related to our tax positions requires significant judgment as uncertainties often exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities.  Differences between actual results and our assumptions, or changes in our assumptions in future periods, are recorded in the period they become known.  For tax liabilities, we recognize accrued interest related to uncertain tax positions as a component of income tax expense, and penalties, if incurred, are recognized as a component of operating expense.

Our foreign subsidiaries are subject to income taxes in their respective countries, as well as U.S. Federal and state income taxes. The income tax payments they make outside the U.S. give rise to foreign tax credits that we may use to offset taxable income in the United States.

Foreign Currency Translation

Foreign Currency Translation

The consolidated financial statements are presented in our company’s functional and reporting currency, which is the U.S. dollar. For the foreign subsidiaries whose functional currency is other than the U.S. dollar (the British Pound Sterling or GBP for RLJE U.K. and RLJE Ltd.; and Australian dollar for RLJE Australia), balance sheet accounts, other than equity accounts, are translated into U.S. dollars at exchange rates in effect at the end of the period and income statement accounts are translated at average monthly exchange rates. Equity accounts are translated at historical rates. Translation gains and losses are included as a separate component of equity. Gains and losses from foreign currency denominated transactions are included in the statement of operations as a component of other income (expense).

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amount of our financial instruments, which principally include cash, trade receivables, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. The carrying amount of our debt and notes payable approximates fair value as the debt bears market interest rates of interest.  Our estimate of fair value is based on the recent refinancing of our notes.  We consider this assessment of fair value to be a Level 3 assessment.

ASC 820, Fair Value Measurements and Disclosures (or ASC 820), defines fair value, establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair-value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our recurring fair value measurements of financial assets and liabilities and our nonrecurring fair value measurements of assets and liabilities are disclosed in Note 14, Fair Value Measurements.

Concentration of Credit Risk

Concentrations of Credit Risk

Financial instruments which potentially subject RLJE to concentrations of credit risk consist primarily of deposit accounts and trade accounts receivable. RLJE maintains bank accounts at financial institutions, which at times may exceed amounts insured by the Federal Deposit Insurance Corporation (or FDIC) and Securities Investor Protection Corporation (or SIPC). We place our cash with several financial institutions which are reputable and therefore bear minimal credit risk. RLJE has never experienced any losses related to these balances.

With respect to trade receivables, we perform ongoing credit evaluations of our customers’ financial conditions and limit the amount of credit extended when deemed necessary but generally require no collateral.

Major Customers and Distribution Facilitators

We have a high concentration of net revenues from relatively few customers, the loss of which may adversely affect our liquidity, business, results of operations, and financial condition.  During 2014, our net revenues from Amazon accounted for 19.0% of our net revenues.  Our top five customers accounted for approximately 46.2% of our net revenues for the same period.  During 2013, Amazon and Entertainment One Films Canada accounted for approximately 13.6% and 10.3%, respectively, of our net revenues.  Our top five customers accounted for approximately 42.1% of our net revenues for 2013.

We may be unable to maintain favorable relationships with our retailers and distribution facilitators such as, Sony Pictures Home Entertainment (or SPHE) and Sony DADC UK Limited.  Further, our retailers and distribution facilitators may be adversely affected by economic conditions.  If we lose any of our top customers, or if any of these customers reduces or cancels a significant order, it could have a material adverse effect on our liquidity, business, results of operations, and financial condition.

Our high concentration of sales to relatively few customers (and use of a third-party to manage collection of substantially all packaged goods receivables) may result in significant uncollectible accounts receivable exposure, which may adversely affect our liquidity, business, results of operations, and financial condition.  As of December 31, 2014, SPHE and Netflix accounted for approximately 44.0% and 21.4%, respectively, of our gross accounts receivable.  At December 31, 2013, SPHE and Netflix accounted for approximately 43.8% and 17.3%, respectively, or our gross accounts receivable.

Property, Equipment and Improvements

Property, Equipment and Improvements

Property, equipment and improvements are stated at cost less accumulated depreciation and amortization.  Major renewals and improvements are capitalized; minor replacements, maintenance and repairs are expensed as incurred.  Internal-use software development costs are capitalized if the costs were incurred while in the application development stage, or if the costs were for upgrades and enhancements that provide additional functionality.  Training and data-conversion costs are expensed as incurred.  We cease capitalizing software costs and start depreciating the software once the project is substantially complete and ready for its intended use.

Depreciation and amortization are computed by applying the straight-line method over the estimated useful lives of the furniture, fixtures and equipment (3-7 years), and software (3 years).  Leasehold improvements are amortized over the shorter of the useful life (10 years) of the improvement or the life of the related leases.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

We review long-lived and specific, definite-lived, identifiable intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.  An impairment loss of the excess of the carrying value over fair value would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount.  We have no intangible assets with indefinite useful lives.

Leases

Leases

We lease all of the office space utilized for our operations.  All of our leases are operating leases in nature.  A majority of our leases have fixed incremental increases over the lease terms, which are recognized on a straight-line basis over the term of the lease.

Equity Method Investments

Equity Method Investments

We use the equity method of accounting for investments in companies in which we do not have voting control but where we do have the ability to exert significant influence over operating decisions of the companies.  Our equity method investments are periodically reviewed to determine whether there has been a loss in value that is other than a temporary decline.

Debt Discounts

Debt Discounts

The difference between the principal amount of our debt and the amount recorded as the liability represents a debt discount. The carrying amount of the liability is accreted up to the principal amount through the amortization of the discount, using the effective interest method, to interest expense over the expected term of the debt.

Advertising Costs

Advertising Costs

Our advertising expense consists of expenditures related to advertising in trade and consumer publications, product brochures and catalogs, booklets for sales promotion, radio advertising and other promotional costs.  In accordance with ASC 720-35, Other Expenses—Advertising Costs, and ASC 340-20, Other Assets and Deferred Costs—Capitalized Advertising Costs, we expense advertising costs in the period in which the advertisement first takes place.  Product brochures and catalogs and various other promotional costs are capitalized and amortized over the expected period of future benefit, but generally not exceeding six months.  Advertising and promotion expense are included as a component of selling expenses.  For the years ended December 31, 2014 and 2013, advertising expense was $3.3 million and $3.4 million, respectively.

Stock Options and Restricted Stock Awards

Stock Options and Restricted Stock Awards

We expense our stock-based awards in accordance with ASC 718, Compensation—Stock Compensation (or ASC 718).  ASC 718 establishes standards with respect to the accounting for transactions in which an entity exchanges its equity instruments for goods or services, or incurs liabilities in exchange for goods or services, that are based on the fair value of the entity’s equity instruments, focusing primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  ASC 718 requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions) and recognize the cost over the period during which an employee is required to provide service in exchange for the award.  Expense recognized is reduced by estimated forfeitures.

Earnings/Loss per Share

Earnings/Loss per Share

Basic earnings/loss per share is computed using the weighted-average number of common shares outstanding during the period.  Diluted earnings per share are computed using the combination of dilutive common share equivalents and the weighted-average shares outstanding during the period.  For the periods reporting a net loss, diluted loss per share is equivalent to basic loss per share, as inclusion of common share equivalents would be anti-dilutive.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

On May 28, 2014, the Financial Accounting Standards Board issued accounting standard update (or ASU) No. 2014-09, Revenue from Contracts with Customers (or ASU 2014-09), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for RLJE on January 1, 2017. Early application is not permitted. The standard permits the use of one of three transition methods. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We are also assessing the transition methods available to implement this new accounting standard.  This update could impact the timing and amounts of revenue recognized within our consolidated financial statements.

On August 27, 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements — Going Concern (or ASU 2014-09), which is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures.  This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes.  Under U.S. GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, U.S. GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures.We will adopt this ASU beginning with annual period ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016.  Upon adoption, we will begin evaluating going concern under this guidance.

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DESCRIPTION OF BUSINESS

12 Months Ended

Dec. 31, 2014

DESCRIPTION OF BUSINESS [Abstract]

DESCRIPTION OF BUSINESS

NOTE 1. DESCRIPTION OF BUSINESS

Description of Business and Basis of Presentation

RLJ Entertainment, Inc. (or RLJE) is a global entertainment company with a direct presence in North America, the United Kingdom (or U.K.) and Australia and sublicense and distribution relationships covering Europe, Asia and Latin America.  RLJE was incorporated in Nevada in April 2012. On October 3, 2012, we completed the business combination of RLJE, Image Entertainment, Inc. (or Image) and Acorn Media Group, Inc. (or Acorn Media), which is referred to herein as the “Business Combination.”  Acorn Media includes its subsidiaries RLJE International Ltd (or RLJE U.K.), RLJ Entertainment Australia Pty Ltd. (or RLJE Australia) and RLJ Entertainment Ltd (or RLJE Ltd.).  In February 2012, Acorn Media acquired a 64% ownership of Agatha Christie Limited (or ACL).  References to Image include its wholly-owned subsidiary Image/Madacy Home Entertainment, LLC.  “We,” “our” or “us” refers to RLJE and its subsidiaries unless otherwise noted.  Our principal executive offices are located in Silver Spring, Maryland, with additional locations in Woodland Hills, California, and Stillwater, Minnesota, and international locations in London, England and Sydney, Australia.

We acquire content rights in various categories including, British mysteries and dramas, urban programming, and full-length independent motion pictures.  We acquire this content in two ways:

§ Through long-term exclusive licensing agreements where we secure multiple rights to third-party programs, and;

§ Through development, production, and ownership of original drama television programming through our wholly-owned subsidiary, RLJE Ltd., and our majority-owned subsidiary, ACL, as well as fitness programs through our Acacia brand.

We exploit our products through a multi-channel strategy encompassing (1) the licensing of original drama and mystery content managed and developed through our wholly-owned subsidiary, RLJE Ltd., and our majority-owned subsidiary, ACL, (IP Licensing segment) as well as our fitness offerings; (2) wholesale exploitation through partners covering broadcast/cable, digital, online, and brick and mortar outlets (Wholesale segment); and (3) direct relations with consumers via proprietary e-commerce, catalog, and subscription-based video on demand (or SVOD) channels (Direct-to-Consumer segment).

Our wholesale partners are broadcasters, digital outlets and major retailers in the United States of America (or U.S.), Canada, U.K. and Australia, including, among others, Amazon, Netflix, Walmart, Target, Costco, Barnes & Noble, iTunes, BET, Showtime, PBS, DirecTV, and Hulu.

Our Direct-to-Consumer segment includes the sale of video content and complementary merchandise directly to consumers through proprietary e-commerce websites, and catalogs and the continued roll-out of our proprietary subscription-based SVOD channels, such as Acorn TV, Acacia TV and UMC (Urban Movie Channel), the latter of which was launched in November 2014.

RLJE’s management views the operations of the Company based on these three distinctive reporting segments: (1) Intellectual Property (or IP) Licensing; (2) Wholesale; and (3) Direct-to-Consumer.  Operations and net assets that are not associated with any of these stated segments are reported as “Corporate” when disclosing and discussing segment information.  The IP Licensing segment includes intellectual property rights that we own or create and then sublicense for exploitation worldwide.  Our Wholesale and Direct-to-Consumer segments consist of the acquisition, content enhancement and worldwide exploitation of exclusive content in various formats, including broadcast (including cable and satellite), DVD, Blu-ray, digital, video-on-demand (or VOD), SVOD, downloading and sublicensing.  The Wholesale segment exploits content through third-party vendors, while the Direct-to-Consumer segment exploits the same content and complementary merchandise directly to consumers through our proprietary e-commerce websites, mail-order catalogs and digitally streaming channels.

Basis of Presentation

The accompanying audited consolidated financial statements and related footnotes have been prepared in accordance with accounting principles generally accepted in the United States of America (or U.S. GAAP) and with the Securities and Exchange Commission’s (or SEC) instructions for the Form 10-K.  The preparation of financial statements in conformity with U.S. GAAP requires estimates and assumptions that affect the reported amounts within our consolidated financial statements.  Although we believe that these estimates to be reasonably accurate, actual amounts may differ.

Reclassifications and Adjustments

Certain amounts reported previously in our consolidated financial statements have been reclassified to be comparable with the classifications used for our 2014 consolidated financial statements.  We reclassified certain expenses that had been reported in previous periods within our Wholesale segment to Corporate.  Also, in 2014, we began reporting the change in the fair value of our stock warrants as a separate line item within our statement of operations.

During the fourth quarter of 2014, we reviewed our estimates for accruals of price adjustments that we provide to our customers.  Specifically, we analyzed the cost of sales impact of these accruals, which we previously did not consider or recognize for financial statement reporting purposes at the time of accrual.  While the cost of sales impact is immaterial, we are adjusting our 2013 consolidated financial statements (See Note 9, Goodwill and Other Intangible Assets).

Earnings Per Share Presentation

During the first quarter of 2014, we changed our presentation of our earnings per share (or EPS) by excluding our restricted common stock from the calculation, and as a result, we removed our two-class method presentation of EPS per Accounting Standards Codification (or ASC) 260, Earnings Per Share.  This change was determined because our restricted common stock is not obligated to fund our reported net losses.  We also removed 898,438 founder shares from unrestricted common stock for the year ended December 31, 2013, as these shares could be forfeited in future periods (see Note 12, Equity).  For the year ended December 31, 2013, the unrestricted weighted average shares outstanding was reduced by 898,438 founder shares and the loss per share for unrestricted common stock increased to $(2.50) per share from $(2.30) per share.  We have assessed this change in presentation for materiality and determined this change is not material to our consolidated financial statements.

Principles of Consolidation

The operations of ACL are entirely managed by RLJE, subject to oversight by ACL’s Board of Directors. The investment in ACL is accounted for using the equity method of accounting given the voting control of the Board of Directors by the minority shareholder. We have included our share of ACL’s operating results, using the equity method of accounting, in our consolidated financial statements.

Our consolidated financial statements include the accounts of all majority-owned subsidiary companies, except for ACL. Investment in ACL is carried as a separate asset on the Consolidated Balance Sheet at cost adjusted for our share of the equity in undistributed earnings. Except for dividends and changes in ownership interest, changes in equity in undistributed earnings of ACL are included in “Other income (expense)” in the Consolidated Statements of Operations. All intercompany transactions and balances have been eliminated.

Liquidity

For the years ended December 31, 2014 and 2013, we recognized a net loss of $21.2 million and $31.1 million, respectively, and we used $1.6 million of cash in operating activities during 2014.   At December 31, 2014, our cash balance was $6.7 million.  At December 31, 2014, we had $80.9 million of term debt outstanding (see Note 10, Debt).  As of March 31, 2015, our cash balance had declined and we were not in compliance with our minimum cash balance requirement of $3.5 million within our Credit Agreement.  This default was waived by our lenders on April 15, 2015 (See Note 23, Subsequent Events).  We continue to experience liquidity constraints and we are dependent upon growth in sales and margins to meet our liquidity needs and our debt covenants for the next twelve months.  On April 15, 2015, we amended our Credit Facility to increase the likelihood that we will meet our future covenant requirements and amended our subordinated notes to reduce the applicable interest rate for two years.  We also improved our liquidity by selling on April 15, 2015 15,000 shares of Bridge Preferred Stock for $15.0 million.  The proceeds received were used to make an accelerated principal payment of $10.0 million under our Credit Agreement, pay fees and expense incurred of approximately $1.0 million, and approximately $4.0 million is available for working capital needs.  We are also in discussions with other potential investors to sell additional shares of preferred stock (See Note 23, Subsequent Events).  There can be no assurances that we will be successful in raising additional capital, realize revenue and margin growth or meeting our future covenant requirements within our Credit Agreement.  We believe that our current financial position combined with our forecasted operational results will be sufficient to meet our commitments.

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SEGMENT INFORMATION (Tables)

12 Months Ended

Dec. 31, 2014

SEGMENT INFORMATION [Abstract]

Summary of segment performance

The following tables summarize the segment contribution for the years ended December 31, 2014 and 2013:

(In thousands)	Year Ended December 31, 2014
	IP Licensing			Wholesale			Direct-to-Consumer			Corporate			Total
Revenue	$	8,752		$	91,379		$	37,558		$	—		$	137,689
Operating costs and expenses		(6,662	)		(85,595	)		(41,413	)		(11,975	)		(145,645	)
Depreciation and amortization		(115	)		(1,684	)		(3,415	)		(480	)		(5,694	)
Goodwill impairment		—			—			(981	)		—			(981	)
Share in ACL earnings		2,580			—			—			—			2,580
Segment contribution	$	4,555		$	4,100		$	(8,251	)	$	(12,455	)	$	(12,051	)

(In thousands)	Year Ended December 31, 2013
	IP Licensing			Wholesale			Direct-to-Consumer			Corporate			Total
Revenue	$	8,019		$	115,397		$	41,414		$	—		$	164,830
Operating costs and expenses		(7,967	)		(118,455	)		(44,762	)		(11,087	)		(182,271	)
Depreciation and amortization		(89	)		(3,115	)		(2,931	)		(39	)		(6,174	)
Share in ACL earnings		3,296			—			—			—			3,296
Segment contribution	$	3,259		$	(6,173	)	$	(6,279	)	$	(11,126	)	$	(20,319	)

Reconciliation of total segment contribution to income (loss) before provision for income taxes

A reconciliation of total segment contribution to income (loss) before provision for income taxes is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Total segment loss	$	(12,051	)	$	(20,319	)
Interest expense, net		(9,459	)		(8,279	)
Change in fair value of stock warrants		3,522			201
Loss on extinguishment of debt		(1,457	)		—
Other expense		(1,356	)		(479	)
Loss before provision for income taxes	$	(20,801	)	$	(28,876	)

Revenue by geographical location

Total revenue by geographical location is as follows:

(In thousands)	Years Ended December 31,
	2014		2013
United States	$	112,325	$	138,964
United Kingdom		23,501		24,103
Other		1,863		1,763
Net Revenues	$	137,689	$	164,830

Assets by segment

Total assets by segment are as follows:

(In thousands)	December 31,
	2014		2013
IP Licensing	$	30,197	$	36,127
Wholesale		140,935		160,968
Direct-to-Consumer		12,049		15,964
Corporate		8,873		7,211
	$	192,054	$	220,270

Long-lived assets by geographical location

Long-lived assets by geographical location are as follows:

(In thousands)	December 31,
	2014		2013
United States	$	111,445	$	127,260
United Kingdom		39,400		45,310
Other		1,496		1,586
Total long-lived assets	$	152,341	$	174,156

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STOCK WARRANTS (Tables)

12 Months Ended

Dec. 31, 2014

STOCK WARRANTS [Abstract]

Summary of Stock Warrants Outstanding

RLJE had the following warrants outstanding:

	December 31, 2014
(In thousands, except per share data)	Shares		Exercise Price		Remaining Life
Registered warrants		15,375	$	12.00	2.75 years
Sponsor warrants		3,817	$	12.00	2.75 years
Unregistered warrants		1,850	$	12.00	2.75 years
		21,042

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PROPERTY, EQUIPMENT AND IMPROVEMENTS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Property, equipment and improvements	$ 3,886,000	$ 2,933,000
Less: accumulated depreciation and amortization	(1,514,000)	(1,174,000)
Property, equipment and improvements, net	2,372,000	1,759,000
Depreciation and amortization	878,000	869,000
Impairment to property, equipment and improvements	0	0
Furniture, Fixtures and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property, equipment and improvements	1,799,000	1,226,000
Software [Member]
Property, Plant and Equipment [Line Items]
Property, equipment and improvements	1,477,000	1,174,000
Capitalized costs	0	181,000
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property, equipment and improvements	$ 610,000	$ 533,000

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SUBSEQUENT EVENTS (Details) (USD $)	0 Months Ended	12 Months Ended
	Apr. 15, 2015	Dec. 31, 2014	Dec. 31, 2013	Jun. 30, 2015 Ratio	Mar. 31, 2015 Ratio	Jan. 01, 2015
Subsequent Event [Line Items]
Preferred stock, shares issued (in shares)		0	0
Subsequent Event [Member]
Subsequent Event [Line Items]
Preferred stock, shares issued (in shares)	15,000
Proceeds from issuance of stock	$ 15,000,000
Preferred stock, liquidation preference (in dollars per share)	$ 1,000
Preferred stock, liquidation preference (in hundredths)	130.00%
Accelerated principle payment paid	10,000,000
Legal fees and expenses	1,000,000
Subsequent Event [Member] | New Credit Agreement [Member]
Subsequent Event [Line Items]
Fixed Charge Coverage Ratio (in hundredths)				0.63	0.73
Senior Leverage Ratio (in hundredths)				6.92	7.50
Total Leverage Ratio (in hundredths)				8.95	9.00
Minimum cash balance for credit facility		1,000,000
Amount outstanding		10,000,000
Subsequent Event [Member] | New Credit Agreement [Member] | LIBOR [Member]
Subsequent Event [Line Items]
Interest rate (in hundredths)		10.64%
Subsequent Event [Member] | Note Amendment [Member]
Subsequent Event [Line Items]
Interest rate (in hundredths)		12.00%
Percentage of interest due payable in cash (in hundredths)		45.00%
Subsequent Event [Member] | Note Amendment [Member] | 24 Months Period [Member]
Subsequent Event [Line Items]
Interest rate (in hundredths)						1.50%
Subsequent Event [Member] | Note Amendment [Member] | After 24 Months Period [Member]
Subsequent Event [Line Items]
Interest rate (in hundredths)						12.00%
Subsequent Event [Member] | Private Placement [Member] | Equity Trade [Member]
Subsequent Event [Line Items]
Cash purchase offer		4,000,000
Annual dividend (in hundredths)		8.00%
Common stock used for payment (in hundredths)		80.00%
Common stock, conversion price (in dollars per share)		$ 1.00
Common stock used for redemption		80.00%
Subsequent Event [Member] | Private Placement [Member] | Equity Trade [Member] | Minimum [Member]
Subsequent Event [Line Items]
Preferred stock convertible, private placement		15,000,000
Subsequent Event [Member] | Private Placement [Member] | Equity Trade [Member] | Maximum [Member]
Subsequent Event [Line Items]
Preferred stock convertible, private placement		$ 30,000,000
Subsequent Event [Member] | Warrant [Member] | Equity Trade [Member]
Subsequent Event [Line Items]
Percentage of warrants issue to purchase common stock		30.00%
Term of warrants		5 years
Exercise price of warrant (in dollars per share)		$ 1.50
Subsequent Event [Member] | Convertible Preferred Stock [Member] | Note Amendment [Member]
Subsequent Event [Line Items]
Percentage of outstanding balance to be converted under subordinated note		50.00%
Subsequent Event [Member] | Convertible Preferred Stock [Member] | Equity Trade [Member] | Minimum [Member]
Subsequent Event [Line Items]
Percentage of outstanding shares hold by stockholders needed to vote in favor of issuance		50.00%

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2014	Dec. 31, 2013
ASSETS
Cash	$ 6,662	$ 7,674
Accounts receivable, net	17,389	20,324
Inventories	13,029	15,589
Investment in content, net	67,525	81,641
Prepaid expenses and other assets	2,633	2,527
Property, equipment and improvements, net	2,372	1,759
Equity investment in affiliates	22,281	25,233
Other intangible assets	15,272	19,651
Goodwill	44,891	45,872
Total assets	192,054	220,270
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities	24,582	32,331
Accrued royalties and distribution fees	42,493	42,115
Deferred revenue	5,006	4,402
Debt, net of discount	80,913	76,264
Production loan	0	1,294
Deferred tax liability	2,002	1,814
Stock warrant liability	601	4,123
Total liabilities	155,597	162,343
Equity:
Common stock, $0.001 par value, 250 million shares authorized, 13,724,756 shares issued and 13,335,258 shares outstanding at December 31, 2014 and 13,700,862 shares issued and outstanding at December 31, 2013	14	13
Additional paid-in capital	87,706	86,938
Accumulated deficit	(50,534)	(29,334)
Accumulated other comprehensive income (loss)	(729)	310
Treasury shares, at cost, 389,498 shares at December 31, 2014 and zero at December 31, 2013	0	0
Total equity	36,457	57,927
Total liabilities and equity	$ 192,054	$ 220,270

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STATEMENTS OF CASH FLOWS (Tables)

12 Months Ended

Dec. 31, 2014

STATEMENTS OF CASH FLOWS [Abstract]

Supplemental Cash Flows Information

Supplemental Disclosures

	2014		2013
Cash paid during the period for:
Interest	$	7,016	$	4,765
Income taxes	$	499	$	2,565

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CONSOLIDATED STATEMENTS OF EQUITY (USD $) In Thousands, except Share data	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]
Balance at Dec. 31, 2012	$ 88,044	$ 13	$ 86,133	$ 1,743	$ 155	$ 0
Balance (in shares) at Dec. 31, 2012	13,378,000					0
Issuance of restricted common stock for services	0	0	0	0	0	0
Issuance of restricted common stock for services (in shares)	323,000					0
Stock-based compensation	805	0	805	0	0	0
Foreign currency translation	155	0	0	0	155	0
Net loss	(31,077)	0	0	(31,077)	0	0
Balance at Dec. 31, 2013	57,927	13	86,938	(29,334)	310	0
Balance (in shares) at Dec. 31, 2013	13,700,862
Issuance of restricted common stock for services	0	1	(1)	0	0	0
Issuance of restricted common stock for services (in shares)	190,000					166,000
Forfeiture of restricted common stock (in shares)	(97,000)					(97,000)
Forfeiture of restricted common stock	0	0	0	0	0	0
Forfeiture of founder shares	0	0	0	0	0	0
Forfeiture of founder shares (in shares)	(459,000)					(459,000)
Stock-based compensation	769	0	769	0	0
Foreign currency translation	(1,039)	0	0	0	(1,039)
Net loss	(21,200)	0	0	(21,200)	0	0
Balance at Dec. 31, 2014	$ 36,457	$ 14	$ 87,706	$ (50,534)	$ (729)
Balance (in shares) at Dec. 31, 2014	13,335,258					(390,000)

XML

STOCK WARRANTS (Details) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Warrants [Member]
Class of Warrant or Right [Line Items]
Warrants outstanding (in shares)	21,042
Exercise price (in dollars per share)	$ 12.00	$ 12.00
Remaining life	2 years 9 months	3 years 9 months
Fair value of warrants outstanding	$ 601,000	$ 4,100,000
Change in the fair value of warrants	$ 3,500,000	$ 201,000
Warrants [Member] | Minimum [Member]
Class of Warrant or Right [Line Items]
Change in exercise price of warrants (in dollars per share)	$ 6.00
Warrants [Member] | Maximum [Member]
Class of Warrant or Right [Line Items]
Change in exercise price of warrants (in dollars per share)	$ 9.00
Registered Warrants [Member]
Class of Warrant or Right [Line Items]
Warrants outstanding (in shares)	15,375
Exercise price (in dollars per share)	$ 12.00
Remaining life	2 years 9 months
Term of warrants	5 years
Redemption price (in dollars per share)	$ 0.01
Common stock benchmark trading price, Minimum (in dollars per share)	$ 17.50
Trading period to trigger redemption, Minimum	20 days
Benchmark trading period	30 days
Sponsor Warrants [Member]
Class of Warrant or Right [Line Items]
Warrants outstanding (in shares)	3,817
Exercise price (in dollars per share)	$ 12.00
Remaining life	2 years 9 months
Unregistered Warrants [Member]
Class of Warrant or Right [Line Items]
Warrants outstanding (in shares)	1,850
Exercise price (in dollars per share)	$ 12.00
Remaining life	2 years 9 months

XML

INVENTORIES (Tables)

12 Months Ended

Dec. 31, 2014

INVENTORIES [Abstract]

Schedule of Inventory

Inventories are summarized as follows:

(In thousands)	December 31,
	2014		2013
Packaged discs	$	9,580	$	11,340
Packaging materials		1,309		1,873
Other merchandise (1)		2,140		2,376
Inventories	$	13,029	$	15,589

⁽¹⁾ Other merchandise consists of third-party products, primarily gifts, jewelry, and home accents.

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INCOME TAXES (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Tax Table [Line Items]
Valuation allowance as a percentage of deferred tax assets (in hundredths)	99.00%	100.00%
Net operating loss carryforwards, expiration dates	Dec. 31, 2034
Current [Abstract]
Federal	$ 0	$ 0
State	66,000	72,000
Foreign	145,000	665,000
Total current	211,000	737,000
Deferred [Abstract]
Federal	(302,000)	580,000
State	22,000	94,000
Foreign	468,000	790,000
Total deferred	188,000	1,464,000
Total tax expense	399,000	2,201,000
Income before provision for income taxes [Abstract]
Domestic	(22,711,000)	(33,778,000)
Foreign	1,910,000	4,902,000
Total	(20,801,000)	(28,876,000)
Deferred tax liabilities [Abstract]
Net deferred tax assets and liabilities	(2,002,000)	(1,814,000)
Income Tax Reconciliation [Abstract]
Expected income tax benefit - 34%	(7,072,000)	(9,818,000)
Income not subject to income tax	0	(1,499,000)
State income taxes, net of federal benefit	66,000	73,000
Non-deductible expenses	93,000	85,000
Change in valuation allowance	9,206,000	13,406,000
Change in prior year deferred tax allowance	(671,000)	0
Foreign income taxes	145,000	0
Foreign tax credit	(1,132,000)	0
Other	(236,000)	(46,000)
Total tax expense	399,000	2,201,000
Effective income tax rate reconciliation at federal statutory income tax (in hundredths)	34.00%	34.00%
Federal [Member]
Tax Table [Line Items]
Net operating loss carryforwards	67,900,000
State [Member]
Tax Table [Line Items]
Net operating loss carryforwards	60,700,000
Federal and State [Member]
Deferred tax assets [Abstract]
Provision for lower of cost or market inventory write-downs	4,232,000	5,174,000
Net operating loss carryforwards	25,173,000	18,359,000
Allowance for sales returns	1,208,000	1,166,000
Allowance for doubtful accounts receivable	12,000	0
Marketing discounts and price protection reserves	2,559,000	1,559,000
Accrued compensation and benefits	173,000	298,000
Tax credits carryforwards	4,156,000	1,980,000
Other	371,000	353,000
Deferred tax assets	37,884,000	28,889,000
Less valuation allowance	(35,837,000)	(27,047,000)
Deferred tax assets	2,047,000	1,842,000
Deferred tax liabilities [Abstract]
Intangible assets	0	(1,409,000)
Warrant liability	(1,625,000)	(308,000)
Goodwill amortization	(833,000)	(674,000)
Equity income in ACL	0	0
Other	0	(125,000)
Deferred tax liabilities	(2,458,000)	(2,516,000)
Net deferred tax assets and liabilities	(411,000)	(674,000)
Foreign [Member]
Deferred tax assets [Abstract]
Provision for lower of cost or market inventory write-downs	0	0
Net operating loss carryforwards	416,000	0
Allowance for sales returns	0	0
Allowance for doubtful accounts receivable	0	0
Marketing discounts and price protection reserves	0	0
Accrued compensation and benefits	0	0
Tax credits carryforwards	0	0
Other	13,000	0
Deferred tax assets	429,000	0
Less valuation allowance	(416,000)	0
Deferred tax assets	13,000	0
Deferred tax liabilities [Abstract]
Intangible assets	0	0
Warrant liability	0	0
Goodwill amortization	0	0
Equity income in ACL	(1,604,000)	(1,140,000)
Other	0	0
Deferred tax liabilities	(1,604,000)	(1,140,000)
Net deferred tax assets and liabilities	$ (1,591,000)	$ (1,140,000)

XML

NET INCOME (LOSS) PER COMMON SHARE DATA

12 Months Ended

Dec. 31, 2014

NET INCOME (LOSS) PER COMMON SHARE DATA [Abstract]

NET INCOME (LOSS) PER COMMON SHARE DATA

NOTE 15. NET INCOME (LOSS) PER COMMON SHARE DATA

The following is a reconciliation of the numerators and denominators used in computing basic and diluted net income (loss) per common share for the years ended December 31, 2014 and 2013:

(In thousands, except per share data)	Years Ended December 31,
	2014			2013
Basic and diluted:
Net loss	$	(21,200	)	$	(31,077	)
Denominator - basic and diluted:
Weighted-average common shares outstanding – basic		12,532			12,447
Effect of dilutive securities		—			—
Weighted-average common shares outstanding – diluted		12,532			12,447
Net loss per common share:
Basic and diluted	$	(1.69	)	$	(2.50	)

We have outstanding warrants to acquire 21,041,667 shares of common stock that are not included in the computation of diluted net loss per common share as the effect would be anti-dilutive because their exercise price of $12 per share exceeds the fair value of our common stock.  For the years ended December 31, 2014 and 2013, we have weighted average outstanding shares of approximately 613,000 and 898,000, respectively, which are held by founding shareholders that are forfeitable (See Note 12, Equity), that are not included in the computation of basic or diluted net loss per share as the effect would be anti-dilutive.  For the years ended December 31, 2014 and 2013, we have weighted average outstanding shares of approximately 923,000 and 1,084,000 shares, respectively of restricted common stock, that are not included in the computation of basic and diluted net loss per share as the effect would be anti-dilutive.

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PROPERTY, EQUIPMENT AND IMPROVEMENTS (Tables)

12 Months Ended

Dec. 31, 2014

PROPERTY, EQUIPMENT AND IMPROVEMENTS [Abstract]

Schedule of Property, Equipment and Improvements

Property, equipment and improvements are summarized as follows:

	December 31,
(In thousands)	2014			2013
Furniture, fixtures and equipment	$	1,799		$	1,226
Software		1,477			1,174
Leasehold improvements		610			533
Property, equipment and improvements		3,886			2,933
Less:  accumulated depreciation and amortization		(1,514	)		(1,174	)
Property, equipment and improvements, net	$	2,372		$	1,759

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STATEMENTS OF CASH FLOWS

12 Months Ended

Dec. 31, 2014

STATEMENTS OF CASH FLOWS [Abstract]

STATEMENTS OF CASH FLOWS

NOTE 17. STATEMENTS OF CASH FLOWS

Supplemental Disclosures

	2014		2013
Cash paid during the period for:
Interest	$	7,016	$	4,765
Income taxes	$	499	$	2,565

During 2014 we incurred capital expenditures of $2.0 million of which $300,000 was accrued for and included within accounts payable and accrued liabilities as of year end.

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SEVERANCE (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
SEVERANCE [Abstract]
Severance charge	$ 548,000	$ 2,400,000

XML

CONDENSED STATEMENT OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (21,200)	$ (31,077)
Adjustments to reconcile net loss to net cash:
Equity earnings in affiliates	(2,580)	(3,296)
Amortization of content, including impairments	58,807	75,345
Depreciation and amortization	5,694	6,174
Goodwill impairment	981	0
Deferred tax provision	188	1,464
Foreign currency exchange loss	1,149	484
Fair value adjustment of stock warrant liability	(3,522)	(201)
Non-cash interest expense	2,314	1,526
Loss on extinguishment of debt	1,457	0
Stock-based compensation expense	769	805
Changes in assets and liabilities:
Accounts receivable, net	2,661	4,854
Inventories	2,476	7,462
Investments in content, net	(44,611)	(50,239)
Prepaid expenses and other assets	833	(258)
Accounts payable and accrued liabilities	(7,768)	(6,526)
Deferred revenue	737	33
Net cash provided by (used in) operating activities	(1,615)	6,550
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(1,655)	(1,005)
Dividends received from affiliate	4,040	4,005
Net cash provided by investing activities	2,385	3,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility	0	10,398
Repayments of borrowings under revolving credit facility	(14,949)	(3,000)
Proceeds from production loan	9,865	1,414
Repayment of production loan	(11,155)	0
Proceeds from senior debt, net of discount	65,110	0
Deferred financing costs, senior debt	(1,309)	0
Repayment of senior debt	(48,893)	(14,756)
Cash paid to extinguish debt	(30)	0
Net cash used in financing activities	(1,361)	(5,944)
Effect of exchange rate changes on cash	(421)	(671)
NET INCREASE (DECREASE) IN CASH:	(1,012)	2,935
Cash at beginning of period	7,674	4,739
Cash at end of period	$ 6,662	$ 7,674

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Dec. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
Stockholders' equity:
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	250,000,000	250,000,000
Common stock, shares issued (in shares)	13,724,756	13,700,862
Common stock, shares outstanding (in shares)	13,335,258	13,700,862	13,378,000
Treasury shares (in shares)	389,498	0

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DEBT

12 Months Ended

Dec. 31, 2014

DEBT [Abstract]

DEBT

NOTE 10. DEBT

Debt as of December 31, 2014 consists of the following:

(In thousands)

	Maturity Date	Interest Rate	December 31, 2014
Senior secured term notes	September 11, 2019	LIBOR + 9.9% -10.64%	$	69,388
Less: debt discount				(4,509	)
Total senior-term notes, net of discount				64,879
Subordinated notes payable to prior Image shareholders	October 3, 2018	12 %		16,034
Debt			$	80,913

Debt as of December 31, 2013 consists of the following:

(In thousands)

	Maturity Date	Interest Rate	December 31, 2013
Revolving credit facility	October 3, 2017	Prime + 5% or LIBOR + 6%	$	14,949
Senior secured term notes:
Term loan – A	October 3, 2017	Prime or LIBOR +  4.5% - 5.5%		20,476
Term loan – B	April 3, 2018	Prime or LIBOR + 6.25% - 7.25%		12,287
Term loan – C	April 3, 2018	Prime or LIBOR + 9.25% - 10.25%		15,517
Principal balance outstanding				48,280
Less: debt discount				(2,007	)
Total senior term notes				46,273
Subordinated notes payable prior Image shareholders	October 3, 2018	12%		15,042
Debt, net of discount				76,264
Subordinated production loan - Foyle's War	November 8, 2014	LIBOR + 2.15%		1,294
Debt			$	77,558

On September 11, 2014, we refinanced our secured debt into a new credit agreement with new lenders.

Future minimum principal payments as of December 31, 2014 are as follows:

(In thousands)

	Senior Notes		Subordinated Notes		Total
2015	$	2,450	$	—	$	2,450
2016		2,975		—		2,975
2017		4,375		—		4,375
2018		59,588		16,034		75,622
	$	69,388	$	16,034	$	85,422

Currently, the subordinated notes mature in 2018 and the senior notes mature in 2019; however, if we do not subsequently extend the subordinated debt maturity beyond 2019, then the new senior notes’ maturity would accelerate in conjunction with the repayment of the subordinated notes in 2018.  The above table reflects the assumption that no extension of the subordinated notes occurs.  The senior notes’ minimum principal payments in 2018 would be $5.3 million if the senior notes’ maturity is not accelerated.

New Credit Agreement

On April 15, 2015, we amended our Credit Agreement (as defined below).  The amended terms are disclosed in our subsequent events footnote (See Note 23, Subsequent Events).

On September 11, 2014, we entered into a $70.0 million Credit and Guaranty Agreement (the “Credit Agreement”) with a syndicate of lenders led by McLarty Capital Partners, as administrative agent. The Credit Agreement consists of a term loan totaling $70.0 million with a maturity of five years, at an interest rate equal to (a) LIBOR plus 10.64% for so long as the unpaid principal amount of the Credit Agreement is greater than $65.0 million, and (b) LIBOR plus 9.9% thereafter.  LIBOR has a floor of 0.25%.  Principal payment obligations as a percentage of the amount initially borrowed are 3.5% per annum paid quarterly for the first two years, 5.0% for the third year and 7.5% for the remaining term with any unpaid principal balance due at maturity.  The obligations under the Credit Agreement are secured by a lien on substantially all of our consolidated assets pursuant to the Pledge and Security Agreement, dated as of September 11, 2014.

Under the Credit Agreement, interest and principal is payable quarterly with principal payments beginning on December 31, 2014. Beginning in 2016, we are obligated to make certain accelerated principal payments annually which are contingent upon:  (1) the occurrence of consolidated excess cash flows, as defined in the Credit Agreement, and (2) only to the extent at which such excess cash flows are above our minimum cash threshold of $12.0 million.  We are permitted to make additional voluntary principal payments under the Credit Agreement, but prepayments are subject to an applicable prepayment premium of:  (a) 5% if prepaid during the first year, (b) 3% if prepaid during the second year, and (c) 1.5% if prepaid during the third year.  The first $5.0 million of voluntary prepayment is not subject to any prepayment premium.

We incurred $4.9 million in original issuance discounts and other related fees paid to lenders under the Credit Agreement.  We also incurred $1.3 million in fees for legal and other professional services.  Repayment of our previous credit facility included principal and accrued interest of $56.1 million ($15.0 million for our revolving credit facility and $41.1 million for our term loans and accrued interest).

The Credit Agreement contains certain financial and non-financial covenants beginning on December 31, 2014.  Financial covenants are assessed quarterly and are based on Adjusted EBITDA, as defined in the Credit Agreement.  Financial covenants vary each quarter and generally become more restrictive over time.  Financial covenants include the following:

	December 31, 2014	2015	2016	Thereafter
Leverage Ratios:
Senior debt-to-Adjusted EBITDA	4.64 : 1.00	Ranges from 4.87 : 1.00 to 4.03 : 1.00	Ranges from 3.86 : 1:00 to 2:67 : 1.00	2.67 : 1.00
Total debt-to-Adjusted EBITDA	5.71 : 1.00	Ranges from 6.09 : 1.00 to 5.06 : 1.00	Ranges from 4.82 : 1:00 to 3.44 : 1.00	3.44 : 1.00
Fixed charge coverage ratio	1.10 : 1.00	Ranges from 1.07 : 1.00 to 1.20 : 1.00	Ranges from 1.24 : 1.00 to 1.59 : 1.00	1.59 : 1.00

We are also obligated to maintain a minimum valuation ratio computed on the outstanding principal balance of our senior debt compared to the sum of our valuations of our content library and our investment in ACL.  To the extent the valuation ratio exceeds the allowed threshold, we are obligated to make an additional principal payment such that the threshold would not be exceeded after giving effect of this payment.  The valuation threshold is 83% as long as the unpaid principal balance exceeds $65.0 million and 75% thereafter.

The Credit Agreement contains events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross defaults to certain other contracts (including, for example, business arrangements with Sony Pictures Home Entertainment and other material contracts) and indebtedness and events constituting a change of control or a material adverse effect in any of our results of operations or conditions (financial or otherwise).  The occurrence of an event of default will increase the applicable rate of interest and could result in the acceleration of our obligations under the Credit Agreement.

The Credit Agreement imposes restrictions on such items as encumbrances and liens, payments of dividends, other indebtedness, stock repurchases, capital expenditures and entering into new lease obligations.  Additional covenants restrict our ability to make certain investments, such as loans and equity investments, or investments in content that are not in the ordinary course of business.  Pursuant to the new Credit Agreement, we must maintain at all times a cash balance of $3.5 million.  As of December 31, 2014, we were in compliance with our Credit Agreement.

When repaying the previous credit facility, we recognized a $1.5 million loss from the early extinguishment of debt, which is reported separately within our statement of operations.  This loss primarily represented the unamortized debt discount and deferred financing costs at the time of repayment of our prior credit facility.

Subordinated Notes Payable and Other Debt

On April 15, 2015, we amended our subordinated promissory notes that were issued to the selling preferred stockholders of Image.  The amended terms are disclosed in our subsequent events footnote (See Note 23, Subsequent Events).

In October 2012, we issued unsecured subordinated promissory notes in the aggregate principal amount of $14.8 million to the selling preferred stockholders of Image.  The subordinated notes mature on the earlier of October 3, 2018 or six months after the latest stated maturity of the senior debt issued pursuant to the Credit Agreement.  The unsecured subordinated notes bear an interest rate of 12% per an annum, of which 5.4% is payable in cash annually and at our discretion the balance is either paid through the issuance of shares of our common stock valued at their then-current market price, or accrues and is added to the principal, which is payable upon maturity.  During the second quarter of 2014, interest was due of $1.8 million of which $992,000 was added to the principal balance of these notes and the remainder was paid to the debt holders.  At December 31, 2014, our principal balance due pursuant to these notes was $16.0 million.

In October 2013, we began our production of the next season of the franchise series of Foyle’s War.  Acorn Productions Limited and Acorn Global Enterprises Limited, both wholly-owned subsidiaries of RLJE Ltd., entered into a cash advance facility (the FW9 Facility) with Coutts and Co., a U.K. based lender, for purposes of producing three ninety-minute television programs entitled “Foyle’s War Series 9.” The facility carried interest at a rate of LIBOR plus 2.15%.  Interest and repayment of advances received were due on or before November 8, 2014.  This facility was substantially secured by (i) executed license agreements whereby we have pre-sold certain broadcast and distribution rights and (ii) U.K. tax credits based on anticipated qualifying production expenditures.  The assets and intellectual property are collateral of the Credit Agreement now that the loan is fully paid and settled.  At December 31, 2014, this production loan was fully repaid.

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2014	Apr. 30, 2015	Jun. 30, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	RLJ ENTERTAINMENT, INC.
Entity Central Index Key	0001546381
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float			$ 28,736,428
Entity Common Stock, Shares Outstanding		12,895,772
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	FY
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2014

XML

STOCK WARRANTS

12 Months Ended

Dec. 31, 2014

STOCK WARRANTS [Abstract]

STOCK WARRANTS

NOTE 11. STOCK WARRANTS

RLJE had the following warrants outstanding:

	December 31, 2014
(In thousands, except per share data)	Shares		Exercise Price		Remaining Life
Registered warrants		15,375	$	12.00	2.75 years
Sponsor warrants		3,817	$	12.00	2.75 years
Unregistered warrants		1,850	$	12.00	2.75 years
		21,042

At December 31, 2013 the same amount of shares at the same exercise price were outstanding with a remaining life of 3.75 years.  The warrants have a term of five years beginning October 3, 2012, and provide the warrant holder the right to acquire a share of our common stock for $12.00 per share. The warrants are redeemable by us for $0.01 per warrant share if our common stock trades at $17.50 or more per share for 20 out of 30 trading days. The warrants contain standard anti-dilution provisions.

The warrants contain a provision whereby the exercise price will be reduced if RLJE reorganized as a private company.  The reduction in exercise price depends upon the amount of other consideration, if any, received by the warrant holders in the reorganization and how many years after the Business Combination reorganization is consummated.  Generally, the reduction in exercise price would be between $6.00 and $9.00 assuming no additional consideration was received.  Because of this provision, all warrants are being accounted for as a derivative liability in accordance with ASC 815-40, Contracts in Entity’s Own Equity.

The fair value of the warrants as of December 31, 2014 and 2013 was $601,000 and $4.1 million, respectively.  The valuation of the warrants is a Level 3 measurement.  The registered warrants had been traded on the over-the-counter market and previously were reported as a Level 1 measurement, but due to the lack of trading activity since the first quarter of 2014, the warrant valuation for registered warrants was transferred to Level 3 and valued in the same manner of the Sponsor and unregistered warrants.  Because RLJE has agreed not to exercise its redemption right pertaining to certain warrants held by RLJ SPAC Acquisition LLC (or the Sponsor) and because the unregistered warrants generally have a discounted fair value as compared to the registered warrants, the valuation of the sponsor warrants and the unregistered warrants has always been a Level 3 measurement.  The decrease in the fair value of the warrants for the years ended December 31, 2014 and 2013 was $3.5 million and $201,000, respectfully.

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]
Revenues	$ 137,689	$ 164,830
Cost of sales	101,454	132,631
Gross profit	36,235	32,199
Selling expenses	24,510	26,830
General and administrative expenses	19,681	22,810
Depreciation and amortization	5,694	6,174
Goodwill impairment	981	0
Total operating expenses	50,866	55,814
LOSS FROM OPERATIONS	(14,631)	(23,615)
Equity earnings of affiliates	2,580	3,296
Interest expense, net	(9,459)	(8,279)
Change in fair value of stock warrants	3,522	201
Loss on extinguishment of debt	(1,457)	0
Other expense	(1,356)	(479)
LOSS BEFORE PROVISION FOR INCOME TAXES	(20,801)	(28,876)
Provision for income taxes	(399)	(2,201)
NET LOSS	$ (21,200)	$ (31,077)
Net loss per common share:
Basic and diluted (in dollars per share)	$ (1.69)	$ (2.50)
Weighted average shares outstanding:
Basic and diluted (in shares)	12,532	12,447

XML

ACCOUNTS RECEIVABLE

12 Months Ended

Dec. 31, 2014

ACCOUNTS RECEIVABLE [Abstract]

ACCOUNTS RECEIVABLE

NOTE 5. ACCOUNTS RECEIVABLE

Accounts receivable are primarily derived from:  (1) the sale of physical content (DVDs) to retailers and wholesale distributors who ship to mass retail, (2) direct-to-consumer, e-commerce, catalog and download-to-own sales and (3) video content we license to broadcast, cable/satellite providers and digital subscription platforms like Netflix and Amazon.  Our accounts receivable typically trends with retail seasonality.

(In thousands)	December 31,
	2014			2013
Wholesale	$	23,922		$	30,966
IP Licensing		608			—
Direct-to-Consumer		762			67
Accounts receivable before allowances and reserves		25,292			31,033
Less:  reserve for returns		(7,870	)		(10,690	)
Less:  allowance for doubtful accounts		(33	)		(19	)
Accounts receivable, net	$	17,389		$	20,324

Wholesale receivables are primarily billed and collected by our U.S. distribution facilitation partner, SPHE.  Each quarter, our distribution partners preliminarily settle our wholesale receivables assuming a timing lag on collections and an average-return rate.  When actual returns differ from the amounts previously assumed, adjustments are made that give rise to payables and receivables between us and our distribution partners.  Amounts vary and tend to be seasonal following our sales activity.  As of December 31, 2014, we owed our distribution partners $3.1 million for receivables settled as of year-end; and as of December 31, 2013, our distribution partners owed us $700,000 for receivables settled as of year-end.  The wholesale receivables are reported net of amounts owed to the distribution partner as amounts are offset against each other when settling.

Our Direct-to-Consumer receivable represents amounts due to us from our merchant bank related to our credit card transactions processed as of year-end.

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EQUITY EARNINGS IN AFFILIATE

12 Months Ended

Dec. 31, 2014

EQUITY EARNINGS IN AFFILIATE [Abstract]

EQUITY EARNINGS IN AFFILIATE

NOTE 4. EQUITY EARNINGS IN AFFILIATE

In February 2012, Acorn Media acquired a 64% interest in ACL for total purchase consideration of £13.7 million or approximately $21.9 million excluding direct transaction costs.  The acquisition gave Acorn Media a majority ownership of ACL’s extensive works including more than 80 novels and short story collections, 19 plays, and a film library of over 100 made-for-television films.

We account for our investment in ACL using the equity method of accounting because (1) Acorn Media is only entitled to appoint one-half of ACL’s board members and (2) in the event the board is deadlocked, the chairman of the board, who is appointed by the directors elected by the minority shareholders, casts a deciding vote.

As of the Business Combination, our 64% share of the difference between ACL’s fair value and the amount of underlying equity in ACL’s net assets was approximately $18.7 million.  This basis-difference is primarily attributable to the fair value of ACL’s copyrights, which expire in 2046, and is being amortized through 2046 using the straight-line method.  Basis-difference amortization is recorded against our share of ACL’s net income in our consolidated statements of operations, however this amortization is not included within ACL’s financial statements.

A summary of the ACL investment account is as follows:

(In thousands)
Investment balance at December 31, 2012	$	25,449
Share of income		3,834
Dividends received		(4,005	)
Basis-difference amortization		(538	)
Translation adjustment		493
Investment balance at December 31, 2013		25,233
Share of income		3,169
Dividends received		(4,040	)
Basis-difference amortization		(589	)
Translation adjustment		(1,492	)
Investment balance at December 31, 2014	$	22,281

The following summarized financial information is derived from financial statements of ACL as of December 31, 2014 and 2013 (balance sheets), and for the years ended December 31, 2014 and 2013 (income statements):

(In thousands)	December 31,
	2014			2013
Cash	$	4,107		$	3,683
Film costs		14,728			9,835
Other assets		10,322			8,294
Production obligation payable		(3,007	)		—
Deferred revenues		(15,527	)		(8,895	)
Other liabilities		(2,147	)		(2,396	)
Equity	$	8,476		$	10,521

	Years Ended December 31,
(In thousands)	2014			2013
Revenues	$	13,460		$	36,976
Film cost amortization		(3,349	)		(25,558	)
General, administrative and other expenses		(3,542	)		(3,307	)
Income from operations		6,569			8,111
Net income	$	4,939		$	5,985

Balance sheet amounts have been translated from the GBP to U.S. dollar using the December 31, 2014 and 2013 exchange rates.  Income statement amounts have been translated from the GBP to U.S. dollar using the average exchange rate for each of the years presented.

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INCOME TAXES

12 Months Ended

Dec. 31, 2014

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 16. INCOME TAXES

RLJE files income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. Our subsidiaries in the United Kingdom and Australia continue to file income tax returns in their foreign jurisdictions.

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  We must assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent that it is more likely than not that such deferred tax assets will not be realized, we must establish a valuation allowance.

As of December 31, 2014, we have a valuation allowance against 99% of our deferred tax assets, which are composed primarily of net operating loss (or NOL) carryforwards that were either acquired in the Business Combination or generated in 2013 and 2014.  Even though we have reserved all of these net deferred tax assets for book purposes, we would still be able to utilize them to reduce future income taxes payable should we have future taxable earnings.  To the extent our deferred tax assets relate to NOL carryforwards, the ability to use such NOLs against future earnings will be subject to applicable carryforward periods.  As of December 31, 2014, we had NOL carryforwards for Federal and state tax purposes of approximately $67.9 million and approximately $60.7 million, respectively, which are available to offset taxable income through 2034.  Our NOL carryforwards begin to expire in 2017.  NOL carryforwards that were acquired in the Business Combination reflect our assessment of an annual limitation on the utilization of these carryforwards due to ownership change limitations as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state limitations.

Income tax expense is summarized below:

(In thousands)	Years Ended December 31,
	2014			2013
Current
Federal	$	—		$	—
State		66			72
Foreign		145			665
		211			737
Deferred
Federal		(302	)		580
State		22			94
Foreign		468			790
		188			1,464
Total Tax Expense	$	399		$	2,201

Income before provision for income taxes is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Domestic	$	(22,711	)	$	(33,778	)
Foreign		1,910			4,902
	$	(20,801	)	$	(28,876	)

The tax effects of temporary differences that give rise to a significant portion of the net deferred tax assets and liabilities at are presented below:

	Years Ended December 31,
(In thousands)	2014						2013
	U.S. Federal and State			Foreign			U.S. Federal and State			Foreign
Deferred tax assets:
Provision for lower of cost or market inventory write-downs	$	4,232		$	—		$	5,174		$	—
Net operating loss carryforwards		25,173			416			18,359			—
Allowance for sales returns		1,208			—			1,166			—
Allowance for doubtful accounts receivable		12			—			—			—
Marketing discounts and price protection reserves		2,559			—			1,559			—
Accrued compensation and benefits		173			—			298			—
Tax credits carryforwards		4,156			—			1,980			—
Other		371			13			353			—
Deferred tax assets		37,884			429			28,889			—
Less valuation allowance		(35,837	)		(416	)		(27,047	)		—
Deferred tax assets		2,047			13			1,842			—
Deferred tax liabilities:
Intangible assets		—			—			(1,409	)		—
Warrant liability		(1,625	)		—			(308	)		—
Goodwill amortization		(833	)		—			(674	)		—
Equity income in ACL		—			(1,604	)		—			(1,140	)
Other		—			—			(125	)		—
Deferred tax liabilities		(2,458	)		(1,604	)		(2,516	)		(1,140	)
Net deferred tax assets and liabilities	$	(411	)	$	(1,591	)	$	(674	)	$	(1,140	)

A reconciliation of income tax benefit based on the federal statutory rate to actual income tax expense (benefit) is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Expected income tax benefit - 34%	$	(7,072	)	$	(9,818	)
Income not subject to income tax		—			(1,499	)
State income taxes, net of federal benefit		66			73
Non-deductible expenses		93			85
Change in valuation allowance		9,206			13,406
Change in prior year deferred tax allowance		(671	)		—
Foreign income taxes		145			—
Foreign tax credit		(1,132	)		—
Other		(236	)		(46	)
Total tax expense	$	399		$	2,201

Our significant tax returns are filed in the following jurisdictions:  United States, United Kingdom and in the following states:  Maryland, California and Illinois.  The tax years for 2009 through 2014 remain open to examination.  We are not currently under examination by any of the jurisdictions where we file significant tax returns.  We believe that our tax filing positions and deductions will be sustained if audited and we do not anticipate any adjustments that would result in a material adverse effect on our financial condition, results of operations, or cash flow.  Therefore, no reserves for uncertain tax positions have been recorded.

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EQUITY

12 Months Ended

Dec. 31, 2014

EQUITY [Abstract]

EQUITY

NOTE 12. EQUITY

Common and Preferred Shares

Our articles of incorporation authorize us to issue up to 250 million shares of common stock and one million shares of preferred stock, par value $0.001 per share.  As of December 31, 2014, there were 13,724,756 shares issued and 13,335,258 shares outstanding.  At December 31, 2013, there were 13,700,862 shares of common stock issued and outstanding.  There were no shares of preferred stock issued or outstanding at December 31, 2014 and 2013.  As of December 31, 2014, the rights and preferences of the preferred stock have not yet been designated.

On April 15, 2015, we issued 15,000 shares of Bridge Preferred Stock.  The terms are disclosed in our subsequent events footnote (See Note 23, Subsequent Events).

On October 3, 2012, in connection with the consummation of the Business Combination, RLJE and certain Image and Acorn Media selling shareholders entered into an amended and restated registration rights agreement (the “Registration Rights Agreement”), in which RLJE agreed to use its best efforts to register certain of its securities held by the stockholders who are a party to the Registration Rights Agreement under the Securities Act of 1933, as amended (the “Securities Act”).  Such stockholders are entitled to make up to three demands, excluding short form registration demands, that RLJE register certain of its securities held by them for sale under the Securities Act.  In addition, such stockholders have the right to include their securities in other registration statements filed by RLJE.  At December 31, 2014, no demand had been received.

Included in our common shares outstanding at December 31, 2013 were 898,438 shares held by the Sponsor as part of the initial public offering of RLJE.  These shares were subject to forfeiture over a two-year period if certain stock price targets were not achieved.  As of December 31, 2014, 458,952 common shares have been returned to the Company and the remaining shares were returned in January 2015.

Treasury Shares

As shares are forfeited, they become treasury shares.  Forfeiture of shares occurs when directors or employees resign or stop working for the Company prior to achieving vesting conditions for certain stock-based compensation awards, when performance conditions are not met regardless of continued employment or service or when Sponsor shares are returned to the Company as discussed above.  Treasury shares are available to RLJE for future grants or issuances of shares as elected by the Company.  At December 31, 2014, we had 389,498 of treasury shares outstanding.  At December 31, 2013, we did not have any treasury shares.

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INVESTMENTS IN CONTENT

12 Months Ended

Dec. 31, 2014

INVESTMENTS IN CONTENT [Abstract]

INVESTMENTS IN CONTENT

NOTE 8. INVESTMENTS IN CONTENT

Investments in content are as follows:

	December 31,
(In thousands)	2014		2013
Released	$	57,766	$	66,527
Completed, not released		7,205		10,387
In-production		2,554		4,727
Investments in content, net	$	67,525	$	81,641

Investments in content are stated at the lower of unamortized cost or estimated fair value. The valuation of investments in content is reviewed on a title-by-title basis when an event or change in circumstances indicates that the fair value of content is less than its unamortized cost.  Impairment charges for the years ended December 31, 2014 and 2013 were $4.8 million and $6.4 million, respectively.  Impairments are included in cost of sales.

As a result of the early termination with a content supplier during the quarter ended June 30, 2013, we incurred during 2013 accelerated amortization and an impairment charge totaling $1.5 million reflecting the shortened content distribution arrangement.

In determining the fair value of content (Note 14, Fair Value Measurements), we employ a discounted cash flows (or DCF) methodology.  Key inputs employed in the DCF methodology include estimates of ultimate revenue and costs, as well as a discount rate.  The discount rate utilized in the DCF analysis is based on a market participant’s weighted average cost of capital plus a risk premium representing the risk associated with producing a particular type of content.

Our estimated future amortization for investments in content is as follows:

(In thousands)
Period	Estimated Amortization		Percentage
1 Year	$	18,046		31.2	%
2 - 3 Years		22,102		38.3	%
4 - 5 Years		10,814		18.7	%
Thereafter		6,804		11.8	%
	$	57,766		100.0	%

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EQUITY (Details) (USD $)	12 Months Ended
	Dec. 31, 2014 Demand	Dec. 31, 2013	Dec. 31, 2012
Scenario [Line Items]
Common stock, authorized (in shares)	250,000,000	250,000,000
Preferred stock, authorized (in shares)	1,000,000	1,000,000
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares issued (in shares)	13,724,756	13,700,862
Common stock, shares outstanding (in shares)	13,335,258	13,700,862	13,378,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Number of demands	3
Treasury stock outstanding (in shares)	389,498	0
Bridge Preferred Stock [Member]
Scenario [Line Items]
Preferred stock, shares issued (in shares)	15,000
Sponsor [Member]
Scenario [Line Items]
Common stock, shares outstanding (in shares)		898,438
Period when stocks will be returned	2 years
Expected shares to be forfeited (in shares)	458,952

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INVENTORIES

12 Months Ended

Dec. 31, 2014

INVENTORIES [Abstract]

INVENTORIES

NOTE 6. INVENTORIES

Inventories are summarized as follows:

(In thousands)	December 31,
	2014		2013
Packaged discs	$	9,580	$	11,340
Packaging materials		1,309		1,873
Other merchandise (1)		2,140		2,376
Inventories	$	13,029	$	15,589

⁽¹⁾ Other merchandise consists of third-party products, primarily gifts, jewelry, and home accents.

For each reporting period, we review the value of inventories on hand to estimate the recoverability through future sales.  Values in excess of anticipated future sales are booked as obsolescence reserve.  Our obsolescence reserve was $11.1 million and $6.5 million as of December 31, 2014 and 2013, respectively.

During the years ended December 31, 2014 and 2013, we incurred impairment charges associated with our inventories due to adjustments for lower of cost or market valuation, shrinkage, and excess and obsolescence of $2.4 million and $6.5 million, respectively.  During the second quarter of 2013, we recorded an inventory impairment charge of $3.3 million resulting from the early termination arrangement with a content supplier. The impairment charge reflected the shortened sell-off period ending March 2014.

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PROPERTY, EQUIPMENT AND IMPROVEMENTS

12 Months Ended

Dec. 31, 2014

PROPERTY, EQUIPMENT AND IMPROVEMENTS [Abstract]

PROPERTY, EQUIPMENT AND IMPROVEMENTS

NOTE 7. PROPERTY, EQUIPMENT AND IMPROVEMENTS

Property, equipment and improvements are summarized as follows:

	December 31,
(In thousands)	2014			2013
Furniture, fixtures and equipment	$	1,799		$	1,226
Software		1,477			1,174
Leasehold improvements		610			533
Property, equipment and improvements		3,886			2,933
Less:  accumulated depreciation and amortization		(1,514	)		(1,174	)
Property, equipment and improvements, net	$	2,372		$	1,759

Depreciation expense for the years ended December 31, 2014 and 2013 was $878,000, and $869,000, respectively.  We capitalized $181,000 of internal-use software development costs for the year ended December 31, 2013.  We did not capitalize any internal-use software development costs for the year ended December 31, 2014.

During the periods ended December 31, 2014 and 2013, there was no impairment to property, equipment and improvements.

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GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2014

GOODWILL AND OTHER INTANGIBLE ASSETS [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS

NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill by segment is as follows:

 (In thousands)

	Wholesale			Direct-to-Consumer			Total
Balance as of January 1, 2013
Goodwill	$	37,966		$	9,416		$	47,382
Adjustment		(1,194	)		—			(1,194	)
Final purchase price allocation and adjustments		6,264			(6,580	)		(316	)
Balance as of December 31, 2013
Goodwill		43,036			2,836			45,872
Impairment loss during year		—			(981	)		(981	)
Balance as of December 31, 2014
Goodwill		43,036			2,836			45,872
Accumulated impairment losses		—			(981	)		(981	)
	$	43,036		$	1,855		$	44,891

Of the goodwill recognized, approximately $21.4 million will be amortized over 15 years for tax purposes giving rise to a future tax deduction.

During the fourth quarter of 2014, we reviewed our estimates for accruals of price adjustments that we provide to our customers.  Specifically, we analyzed the cost of sales impact of these accruals, which we previously did not consider or recognize for financial statement reporting purposes at the time of accrual.  The impact to the previously reported net loss, total comprehensive loss and cash flows for 2013 was insignificant, and as such, we only adjusted $1.2 million between goodwill and accrued royalties and distribution fees within our 2013 consolidated balance sheet.  This adjustment had the effect of reducing both previously reported amounts.

Goodwill was tested for impairment for the periods presented and an impairment loss of $981,000 was recognized during 2014 within our Direct-to-Consumer segment.  No impairments were recognized during 2013.

During the fourth quarter of 2014, the stock price of our publicly traded common stock decreased by 48% and our Direct-to-Consumer segment recognized lower revenue during the quarter compared to prior year’s fourth quarter.  Given the magnitude of these decreases, we considered these to be triggering events and hired a valuation firm to fair value our reporting units that held the majority of our goodwill.  The valuation firm fair valued our reporting units using both the market approach (by using comparable businesses) and the income approach. Significant inputs were the selection of comparable companies, our five-year forecast and a risk-appropriate discount rate of 18%.  The results of the valuations were that only our Direct-to-Consumer segment in the UK had a carrying book value in excess of its fair value.  Management assessed the amount of implied goodwill within this reporting unit and concluded that its goodwill was fully impaired.  The goodwill that remains in our Direct-to-Consumer segment is associated with our proprietary SVOD channels.

Other Intangibles

A summary of our intangibles and accumulated amortization are as follows:

	December 31, 2014
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net
Trade name	$	10,950	$	(1,642	)	$	9,308
Customer relationships		9,290		(6,039	)		3,251
Websites		3,331		(2,211	)		1,120
Supplier contracts		1,720		(609	)		1,111
Option for future content		900		(418	)		482
Leases		400		(400	)		—
	$	26,591	$	(11,319	)	$	15,272

	December 31, 2013
(In thousands)	Gross Carrying  Amount		Accumulated Amortization			Net
Trade name	$	10,950	$	(913	)	$	10,037
Customer relationships		9,290		(3,484	)		5,806
Websites		2,962		(1,386	)		1,576
Supplier contracts		1,720		(338	)		1,382
Option for future content		900		(78	)		822
Leases		400		(372	)		28
	$	26,222	$	(6,571	)	$	19,651

Amortization expense for the years ended December 31, 2014 and 2013 was $4.8 million and $5.3 million, respectively.  Costs incurred to develop, upgrade or enhance functionality of websites are capitalized while website operating costs are expensed as incurred.  During the periods ended December 31, 2014 and 2013, we capitalized $437,000 and $173,000 of costs related to our websites, respectively.

As of December 31, 2014, the remaining amortization by year for intangible assets is as follows:

(In thousands)
Year Ended December 31,
	Amount
2015	$	3,654
2016		2,185
2017		1,849
2018		1,013
2019		913
Thereafter		5,658
	$	15,272

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NET INCOME (LOSS) PER COMMON SHARE DATA (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Basic and diluted [Abstract]
Net loss	$ (21,200)	$ (31,077)
Denominator - basic and diluted [Abstract]
Weighted-average common shares outstanding - basic denominator (in shares)	12,532,000	12,447,000
Effect of dilutive securities (in shares)	0	0
Weighted-average common shares outstanding - diluted denominator (in shares)	12,532,000	12,447,000
Net loss per common share [Abstract]
Basic and diluted (in dollars per share)	$ (1.69)	$ (2.50)
Antidilutive securities excluded from computation of earnings per share (in shares)	613,000	898,000
Warrant [Member]
Net loss per common share [Abstract]
Antidilutive securities excluded from computation of earnings per share (in shares)	21,041,667
Exercise price (in dollars per share)	$ 12
Common Class Restricted [Member]
Net loss per common share [Abstract]
Antidilutive securities excluded from computation of earnings per share (in shares)	923,000	1,084,000

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STATEMENTS OF CASH FLOWS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Cash paid during the period for [Abstract]
Interest	$ 7,016,000	$ 4,765,000
Income taxes	499,000	2,565,000
Capital expenditures	2,000,000
Capital expenditure accrued for in accounts payable	$ 300,000

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FAIR VALUE MEASUREMENTS, Roll Forward (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Class of Warrant or Right [Line Items]
Warrants outstanding (in shares)	21,041,667	21,041,667
The discount rate applied in fair value assumption (in hundredths)	18.00%
Minimum [Member]
Class of Warrant or Right [Line Items]
The discount rate applied in fair value assumption (in hundredths)	9.10%
Maximum [Member]
Class of Warrant or Right [Line Items]
The discount rate applied in fair value assumption (in hundredths)	11.24%
Warrant [Member]
Class of Warrant or Right [Line Items]
Warrants outstanding (in shares)	21,041,667
Registered Warrants [Member]
Class of Warrant or Right [Line Items]
Warrants outstanding (in shares)	15,375,000
Sponsor Warrants [Member]
Class of Warrant or Right [Line Items]
Warrants outstanding (in shares)	3,816,667
Unregistered Warrants [Member]
Class of Warrant or Right [Line Items]
Warrants outstanding (in shares)	1,850,000
Unregistered Warrants [Member] | Minimum [Member]
Class of Warrant or Right [Line Items]
The discount rate applied in fair value assumption (in hundredths)	17.80%	27.00%
Unregistered Warrants [Member] | Maximum [Member]
Class of Warrant or Right [Line Items]
The discount rate applied in fair value assumption (in hundredths)	34.00%	29.00%
Recurring [Member]
Fair value liability [Roll Forward]
Warrant liability beginning of period	4,123	4,324
Change in fair value hierarchy	0
Change in fair value of warrant liability	(3,522)	(201)
Warrant liability end of period	601	4,123
Recurring [Member] | Level 1 [Member]
Fair value liability [Roll Forward]
Warrant liability beginning of period	2,630	2,755
Change in fair value hierarchy	(2,755)
Change in fair value of warrant liability	125	(125)
Warrant liability end of period	0	2,630
Recurring [Member] | Level 2 [Member]
Fair value liability [Roll Forward]
Warrant liability beginning of period	0	0
Change in fair value hierarchy	0
Change in fair value of warrant liability	0	0
Warrant liability end of period	0	0
Recurring [Member] | Level 3 [Member]
Fair value liability [Roll Forward]
Warrant liability beginning of period	1,493	1,569
Change in fair value hierarchy	2,755
Change in fair value of warrant liability	(3,647)	(76)
Warrant liability end of period	601	1,493

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ACCOUNTS RECEIVABLE (Tables)

12 Months Ended

Dec. 31, 2014

ACCOUNTS RECEIVABLE [Abstract]

Accounts Receivable

Accounts receivable are primarily derived from:  (1) the sale of physical content (DVDs) to retailers and wholesale distributors who ship to mass retail, (2) direct-to-consumer, e-commerce, catalog and download-to-own sales and (3) video content we license to broadcast, cable/satellite providers and digital subscription platforms like Netflix and Amazon.  Our accounts receivable typically trends with retail seasonality.

(In thousands)	December 31,
	2014			2013
Wholesale	$	23,922		$	30,966
IP Licensing		608			—
Direct-to-Consumer		762			67
Accounts receivable before allowances and reserves		25,292			31,033
Less:  reserve for returns		(7,870	)		(10,690	)
Less:  allowance for doubtful accounts		(33	)		(19	)
Accounts receivable, net	$	17,389		$	20,324

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ACCOUNTS RECEIVABLE (Details) (USD $)	Dec. 31, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable before allowances and reserves	$ 25,292,000	$ 31,033,000
Less: reserve for returns	(7,870,000)	(10,690,000)
Less: allowance for doubtful accounts	(33,000)	(19,000)
Accounts receivable, net	17,389,000	20,324,000
Advances receivables from distributor	3,100,000	700,000
Wholesale [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable before allowances and reserves	23,922,000	30,966,000
IP Licensing [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable before allowances and reserves	608,000	0
Direct to Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable before allowances and reserves	$ 762,000	$ 67,000

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FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2014

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 14. FAIR VALUE MEASUREMENTS

Warrant Liability

We have warrants outstanding to purchase 21,041,667 shares of our common stock, which are recorded at fair value on the consolidated balance sheets.  Of these warrants, 15,375,000 are warrant shares that are registered and traded on the over-the-counter market.  Since the first quarter of 2014, there has been a lack of a trade activity for the registered warrants, and as such, when assessing their fair value we transferred them from Level 1 to Level 3 within the fair-value hierarchy.  At December 31, 2013, when the registered warrants were reported as a Level 1 valuation, we used the closing market price of our market-traded warrants to determine the fair value of these registered warrants.

As of December 31, 2014, we determined the fair value of the registered warrants using a Monte Carlo simulation model.  Inputs to the model are stock volatility, contractual warrant terms (which are remaining life of the warrant, the redemption feature, the exercise price, and assumptions for the reduction in exercise price if we were to reorganize as a private company), the risk-free interest rate, and a discount for the lack of marketability (DLOM) pertaining to the underlying common stock as the shares acquirable are not registered.  We use the closing market price of our common stock to compute stock volatility.  The DLOM is determined using the Finnerty Average-Strike Put Option Marketability Discount Model (Finnerty Model), which takes into consideration the discount period, stock dividend rates, and stock volatility.  This DLOM ranged between 9.1% and 11.24% during 2014.  Assumptions regarding adjustments to the exercise price are based on management’s best estimates of the likelihood of reorganizing as a private company and the amount of the resulting exercise-price adjustment.

The remaining warrants, consisting of Sponsor Warrants of 3,816,667 and unregistered warrants of 1,850,000 are classified as Level 3 within the fair-value hierarchy.  Sponsor Warrants differ from the registered warrants as we have agreed not to exercise our redemption provision as long as the Sponsor continues to hold the warrants.  We determined the fair value of these warrants using a Monte Carlo simulation model and using the same assumptions used for the registered warrants, except we did not include the redemption feature.

Unregistered warrants differ from the registered warrants in that they have not been registered.  We determined the fair value of these warrants by taking the fair value of a registered warrant and discounting it using the Finnerty Model for the lack of marketability as these warrants are not registered.   Prior to June 30, 2014, we determined this DLOM using the estimated fair value of a protective put relative to the fair value of a registered share of common stock.  This DLOM ranged between 17.8% and 34.0% during 2014, and 27.0% and 29.0% during 2013.

The following tables represent the valuation of our warrant liability within the fair-value hierarchy:

(In thousands)	December 31, 2014
	Level 1		Level 2		Level 3		Total
Warrant liability	$	—	$	—	$	601	$	601

(In thousands)	December 31, 2013
	Level 1		Level 2		Level 3		Total
Warrant liability	$	2,630	$	—	$	1,493	$	4,123

The following tables include a roll-forward of the warrant liability activity classified within Level 1 and Level 3 of the fair-value hierarchy:

(In thousands)	Year Ended December 31, 2014
	Level 1			Level 2		Level 3			Total
Warrant liability at December 31, 2013	$	2,630		$	—	$	1,493		$	4,123
Change in fair-value hierarchy		(2,755	)		—		2,755			—
Change in fair value of warrant liability		125			—		(3,647	)		(3,522	)
Warrant liability at December 31, 2014	$	—		$	—	$	601		$	601

(In thousands)	Year Ended December 31, 2013
	Level 1			Level 2		Level 3			Total
Warrant liability at December 31, 2012	$	2,755		$	—	$	1,569		$	4,324
Change in fair value of warrant liability		(125	)		—		(76	)		(201	)
Warrant liability at December 31, 2013	$	2,630		$	—	$	1,493		$	4,123

Investments in Content

When events and circumstances indicate that investments in content are impaired, we determine the fair value of the investment; and if the fair value is less than the carrying amount, we recognize additional amortization expense equal to the excess.  Our nonrecurring fair value measurement information of assets and liabilities is classified in the tables below:

(In thousands)	Year Ended December 31, 2014
	Level 1		Level 2		Level 3		Total		Loss
Investments in content	$	—	$	—	$	21,804	$	21,804	$	4,817

(In thousands)	Year Ended December 31, 2013
	Level 1		Level 2		Level 3		Total		Loss
Investments in content	$	—	$	—	$	5,693	$	5,693	$	6,419

During the years ended December 31, 2014 and 2013, the investments in content were impaired by $4.8 million and $6.4 million, respectively.  In determining the fair value of our investments in content, we employ a DCF methodology.  Key inputs employed in the DCF methodology include estimates of a film's ultimate revenue and costs as well as a discount rate.  The discount rate utilized in the DCF analysis is based on our weighted average cost of capital plus a risk premium representing the risk associated with producing a particular film or television program.  As the primary determination of fair value is determined using a DCF model, the resulting fair value is considered a Level 3 measurement.

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SEVERANCE

12 Months Ended

Dec. 31, 2014

SEVERANCE [Abstract]

SEVERANCE

NOTE 19. SEVERANCE

During the year ended December 31, 2013, we incurred severance charges of $2.4 million as part of the implemented reorganization from the formation of RLJE with former employees.  During the year ended December 31, 2014, we recognized additional severance charges of $548,000.  The severance charges were recorded as a component of general and administrative expense.

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SEGMENT INFORMATION (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Segment Reporting Information [Line Items]
Net revenues	$ 137,689,000	$ 164,830,000
Operating costs and expenses	(145,645,000)	(182,271,000)
Depreciation and amortization	(5,694,000)	(6,174,000)
Goodwill impairment	(981,000)	0
Share in ACL earnings	2,580,000	3,296,000
Segment contribution	(12,051,000)	(20,319,000)
Negative gross margin	(3,100,000)
Additional operating costs and expenses for wholesale segment		11,500,000
Operating costs and expenses for early termination		4,600,000
Increased reserves for inventory and content impairments		3,400,000
Integration costs from distributor		1,100,000
Costs entering into certain severance agreements	548,000	2,400,000
Capital expenditures	2,000,000
Capital expenditure accrued for in accounts payable	300,000
Total assets by segment [Abstract]
Assets	192,054,000	220,270,000
Total long-lived assets	152,341,000	174,156,000
Reconciliation of total segment contribution to income (loss) before provision for income taxes [Abstract]
Total segment loss	(12,051,000)	(20,319,000)
Interest expense, net	(9,459,000)	(8,279,000)
Change in fair value of stock warrants	3,522,000	201,000
Loss on extinguishment of debt	(1,457,000)	0
Other expense	(1,356,000)	(479,000)
LOSS BEFORE PROVISION FOR INCOME TAXES	(20,801,000)	(28,876,000)
Wholesale [Member]
Segment Reporting Information [Line Items]
Goodwill impairment	0
Direct to Consumer [Member]
Segment Reporting Information [Line Items]
Goodwill impairment	(981,000)
Reportable Segments [Member]
Segment Reporting Information [Line Items]
Capital expenditures	(365,000)
Reportable Segments [Member] | IP Licensing [Member]
Segment Reporting Information [Line Items]
Net revenues	8,752,000	8,019,000
Operating costs and expenses	(6,662,000)	(7,967,000)
Depreciation and amortization	(115,000)	(89,000)
Goodwill impairment	0
Share in ACL earnings	2,580,000	3,296,000
Segment contribution	4,555,000	3,259,000
Capital expenditures	(437,000)
Total assets by segment [Abstract]
Assets	30,197,000	36,127,000
Reportable Segments [Member] | Wholesale [Member]
Segment Reporting Information [Line Items]
Net revenues	91,379,000	115,397,000
Operating costs and expenses	(85,595,000)	(118,455,000)
Depreciation and amortization	(1,684,000)	(3,115,000)
Goodwill impairment	0
Share in ACL earnings	0	0
Segment contribution	4,100,000	(6,173,000)
Capital expenditures	(716,000)
Total assets by segment [Abstract]
Assets	140,935,000	160,968,000
Reportable Segments [Member] | Direct to Consumer [Member]
Segment Reporting Information [Line Items]
Net revenues	37,558,000	41,414,000
Operating costs and expenses	(41,413,000)	(44,762,000)
Depreciation and amortization	(3,415,000)	(2,931,000)
Goodwill impairment	(981,000)
Share in ACL earnings	0	0
Segment contribution	(8,251,000)	(6,279,000)
Capital expenditures	(437,000)
Total assets by segment [Abstract]
Assets	12,049,000	15,964,000
Corporate [Member]
Segment Reporting Information [Line Items]
Net revenues	0	0
Operating costs and expenses	(11,975,000)	(11,087,000)
Depreciation and amortization	(480,000)	(39,000)
Goodwill impairment	0
Share in ACL earnings	0	0
Segment contribution	(12,455,000)	(11,126,000)
Total assets by segment [Abstract]
Assets	8,873,000	7,211,000
Reportable Geographical Components [Member] | United States [Member]
Segment Reporting Information [Line Items]
Net revenues	112,325,000	138,964,000
Total assets by segment [Abstract]
Total long-lived assets	111,445,000	127,260,000
Reportable Geographical Components [Member] | United Kingdom [Member]
Segment Reporting Information [Line Items]
Net revenues	23,501,000	24,103,000
Total assets by segment [Abstract]
Total long-lived assets	39,400,000	45,310,000
Reportable Geographical Components [Member] | Other [Member]
Segment Reporting Information [Line Items]
Net revenues	1,863,000	1,763,000
Total assets by segment [Abstract]
Total long-lived assets	$ 1,496,000	$ 1,586,000

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STOCK-BASED COMPENSATION (Tables)

12 Months Ended

Dec. 31, 2014

STOCK-BASED COMPENSATION [Abstract]

Restricted Stock Activity

Restricted stock award activity under the Incentive Plan for the year ended December 31, 2014, and changes during the year then ended are presented below:

(In thousands, except per share data)
	Service Shares				Performance Shares
Restricted Stock-Based Compensation Award Activity	Shares			Weighted-Average Grant Date Fair Value	Shares			Weighted-Average Grant Date Fair Value
Non-vested shares at January 1, 2014	188		$	5.38	135		$	5.15
Granted	130			3.76	60			4.60
Vested	(127	)		5.51	(56	)		4.60
Forfeited	(12	)		5.01	(83	)		5.16
Non-vested shares at December 31, 2014	179		$	4.13	56		$	5.09

Restricted stock award activity under the Incentive Plan for the year ended December 31, 2013, and changes during the year then ended are presented below:

(In thousands, except per share data)
	Service Shares					Performance Shares
Restricted Stock-Based Compensation Award Activity	Shares			Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Non-vested shares at January 1, 2013		38		$	7.98		—	$	—
Granted		188			5.38		135		5.15
Vested		(38	)		7.98		—		—
Forfeited		—			—		—		—
Non-vested shares at December 31, 2013		188		$	5.38		135	$	5.15

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) [Abstract]
Net loss	$ (21,200)	$ (31,077)
Other comprehensive income (loss):
Foreign currency translation gain (loss)	(1,039)	155
Total comprehensive loss	$ (22,239)	$ (30,922)

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SEGMENT INFORMATION

12 Months Ended

Dec. 31, 2014

SEGMENT INFORMATION [Abstract]

SEGMENT INFORMATION

NOTE 3. SEGMENT INFORMATION

In accordance with the requirements of the ASC 280 “Segment Reporting,” selected financial information regarding our reportable business segments, IP Licensing, Wholesale, and Direct-to-Consumer, is presented below.  Our reportable segments are determined based on the distinct nature of their operations, and each segment is a strategic business unit that is managed separately and either exploits our content over a different customer base or acquires content differently.  Our IP Licensing segment includes intellectual property (or content) owned or created by us, other than certain fitness related content, that is licensed for exploitation worldwide. The IP Licensing segment includes our investment in ACL. Our Wholesale segment consists of the acquisition, content enhancement and worldwide exploitation of exclusive content in various formats, including DVD, Blu-ray, digital, broadcast (including cable and satellite), VOD, streaming video, downloading and sublicensing. Our Direct-to-Consumer segment consists of our mail-order catalog and e-commerce businesses and our proprietary digital streaming channels.

Management currently evaluates segment performance based primarily on revenue, and operating income (loss), including earnings from ACL. Operating costs and expenses allocated below to Corporate include only those expenses incurred by us at the parent corporate level, which are not allocated to our reporting segments, and include costs associated with RLJE’s corporate functions such as finance and accounting, human resources, legal and information technology departments.  Interest expense, change in the fair value of stock warrants, loss on extinguishment of debt, other income (expense) and benefit (provision) for income tax are evaluated by management on a consolidated basis and are not allocated to our reportable segments.

The following tables summarize the segment contribution for the years ended December 31, 2014 and 2013:

(In thousands)	Year Ended December 31, 2014
	IP Licensing			Wholesale			Direct-to-Consumer			Corporate			Total
Revenue	$	8,752		$	91,379		$	37,558		$	—		$	137,689
Operating costs and expenses		(6,662	)		(85,595	)		(41,413	)		(11,975	)		(145,645	)
Depreciation and amortization		(115	)		(1,684	)		(3,415	)		(480	)		(5,694	)
Goodwill impairment		—			—			(981	)		—			(981	)
Share in ACL earnings		2,580			—			—			—			2,580
Segment contribution	$	4,555		$	4,100		$	(8,251	)	$	(12,455	)	$	(12,051	)

(In thousands)	Year Ended December 31, 2013
	IP Licensing			Wholesale			Direct-to-Consumer			Corporate			Total
Revenue	$	8,019		$	115,397		$	41,414		$	—		$	164,830
Operating costs and expenses		(7,967	)		(118,455	)		(44,762	)		(11,087	)		(182,271	)
Depreciation and amortization		(89	)		(3,115	)		(2,931	)		(39	)		(6,174	)
Share in ACL earnings		3,296			—			—			—			3,296
Segment contribution	$	3,259		$	(6,173	)	$	(6,279	)	$	(11,126	)	$	(20,319	)

Operating costs and expenses exclude costs related to depreciation and amortization, as well as goodwill impairments, which are separately presented in the tables above.  Included in our Wholesale segment contribution for the year ended December 31, 2014 is a loss of $3.1 million incurred during the sell-off period under a terminated feature film content output deal that was recognized in the first quarter of 2014.

During the year ended December 31, 2013, we recognized additional operating costs and expenses of approximately $11.5 million, which was primarily recognized within our Wholesale segment as follows:  $4.6 million when management entered into an early termination of a feature film content output deal, increased reserves for inventory and content impairments in the aggregate of approximately $3.4 million, primarily attributable to costs associated with transitioning of the Image/Madacy product line, increased integration costs from a distributor when we combined our Image and Acorn operations of $1.1 million, and $2.4 million associated with entering into certain severance agreements.

A reconciliation of total segment contribution to income (loss) before provision for income taxes is as follows:

(In thousands)	Years Ended December 31,
	2014			2013
Total segment loss	$	(12,051	)	$	(20,319	)
Interest expense, net		(9,459	)		(8,279	)
Change in fair value of stock warrants		3,522			201
Loss on extinguishment of debt		(1,457	)		—
Other expense		(1,356	)		(479	)
Loss before provision for income taxes	$	(20,801	)	$	(28,876	)

Total revenue by geographical location is as follows:

(In thousands)	Years Ended December 31,
	2014		2013
United States	$	112,325	$	138,964
United Kingdom		23,501		24,103
Other		1,863		1,763
Net Revenues	$	137,689	$	164,830

Revenues are attributed to geographical locations based on where our customers reside.

Total assets for each segment primarily include accounts receivable, inventory, and investments in content. The Corporate segment primarily includes assets not fully allocated to a segment including consolidated cash accounts, certain prepaid assets and fixed assets used across all segments.

Total assets by segment are as follows:

(In thousands)	December 31,
	2014		2013
IP Licensing	$	30,197	$	36,127
Wholesale		140,935		160,968
Direct-to-Consumer		12,049		15,964
Corporate		8,873		7,211
	$	192,054	$	220,270

During the year ended December 31. 2014, we had capital expenditures of $2.0 million, which includes $300,000 that was accrued for in accounts payable.  The capital expenditures by segment during 2014 were $437,000, $716,000, $437,000 and $365,000 for the IP Licensing, Wholesale, Direct-to-Consumer and Corporate segments, respectively.

Long-lived assets by geographical location are as follows:

(In thousands)	December 31,
	2014		2013
United States	$	111,445	$	127,260
United Kingdom		39,400		45,310
Other		1,496		1,586
Total long-lived assets	$	152,341	$	174,156

Long-lived assets include goodwill, other intangibles assets, equity investment in ACL, investments in content, and property, equipment and improvements.

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DEBT (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Line of Credit Facility [Line Items]
Repayments of borrowings under revolving credit facility	$ 14,949,000	$ 3,000,000
Loss on extinguishment of debt	1,457,000	0
New Credit Agreement [Member]
Line of Credit Facility [Line Items]
Term of credit facility	5 years
Maximum borrowing capacity	70,000,000
Variable rate basis	LIBOR
Interest rate of principal payment amortization for first year (in hundredths)	3.50%
Interest rate of principal payment amortization for second year (in hundredths)	3.50%
Interest rate of principal payment amortization for third year (in hundredths)	5.00%
Interest rate of principal payment amortization for remaining term (in hundredths)	7.50%
Minimum cash threshold	12,000,000
Percentage of principal prepayment premium in first year (in hundredths)	5.00%
Percentage of principal prepayment premium in second year (in hundredths)	3.00%
Percentage of principal prepayment premium in third year (in hundredths)	1.50%
Voluntary prepayment amount	5,000,000
Legal and other professional fees	1,300,000
Repayment of previous credit facility	56,100,000
Repayments of borrowings under revolving credit facility	15,000,000
Repayments of borrowings under term loans and accrued interest	41,100,000
Percentage of valuation threshold (in hundredths)	83.00%
Minimum threshold unpaid principal balance	65,000,000
Percentage of valuation threshold thereafter (in hundredths)	75.00%
Cash balance maintained for credit facility	3,500,000
Loss on extinguishment of debt	$ 1,500,000
New Credit Agreement [Member] | LIBOR [Member]
Line of Credit Facility [Line Items]
Basis spread on variable rate with floor (in hundredths)	0.25%

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EMPLOYEE BENEFITS (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Defined Contribution Plan Disclosure [Line Items]
Compensation expenses	$ 539,000	$ 560,000
US Sponsor Plan [Member]
Defined Contribution Plan Disclosure [Line Items]
Employer matching contribution (in hundredths)	4.00%
Service period to participate in plan	1 month
UK Subsidiaries Sponsor Plans [Member] | Minimum [Member]
Defined Contribution Plan Disclosure [Line Items]
Employer matching contribution (in hundredths)	3.00%
Service period to participate in plan	3 months
UK Subsidiaries Sponsor Plans [Member] | Maximum [Member]
Defined Contribution Plan Disclosure [Line Items]
Employer matching contribution (in hundredths)	7.00%
Service period to participate in plan	1 year
Australia Subsidiaries Sponsor Plans [Member]
Defined Contribution Plan Disclosure [Line Items]
Employer matching contribution (in hundredths)	9.00%
Australia Subsidiaries Sponsor Plans [Member] | Minimum [Member]
Defined Contribution Plan Disclosure [Line Items]
Service period to participate in plan	3 months
Australia Subsidiaries Sponsor Plans [Member] | Maximum [Member]
Defined Contribution Plan Disclosure [Line Items]
Service period to participate in plan	1 year

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EMPLOYEE BENEFITS

12 Months Ended

Dec. 31, 2014

EMPLOYEE BENEFITS [Abstract]

EMPLOYEE BENEFITS

NOTE 20. EMPLOYEE BENEFITS

Effective October 3, 2012, we established the RLJ Entertainment 401(k) Plan, a defined contribution 401(k) plan for the benefit of employees meeting certain eligibility requirements.  Under the plan, participants may contribute a portion of their earnings on a pre-tax basis.  Employee contributions are forwarded to the plan administrator and invested in various funds at the discretion of the employee.  RLJE matches a portion of those contributions based upon the employee’s compensation status in accordance with the U.S. Internal Revenue Code.  Our U.S. sponsor plan contributes up to four percent depending on the employee’s contribution beginning one month after the date of hire.  Our U.K. and Australia subsidiaries sponsor plans contribute between three to seven percent and nine percent, respectively, to employees beginning after a probationary period of three months to one year.

During the years ended December 31, 2014 and 2013, we incurred compensation expenses of $539,000 and $560,000, respectively, related to these plans.

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2014

GOODWILL AND OTHER INTANGIBLE ASSETS [Abstract]

Schedule of Goodwill

Goodwill by segment is as follows:

 (In thousands)

	Wholesale			Direct-to-Consumer			Total
Balance as of January 1, 2013
Goodwill	$	37,966		$	9,416		$	47,382
Adjustment		(1,194	)		—			(1,194	)
Final purchase price allocation and adjustments		6,264			(6,580	)		(316	)
Balance as of December 31, 2013
Goodwill		43,036			2,836			45,872
Impairment loss during year		—			(981	)		(981	)
Balance as of December 31, 2014
Goodwill		43,036			2,836			45,872
Accumulated impairment losses		—			(981	)		(981	)
	$	43,036		$	1,855		$	44,891

Summary of Other Intangible Assets

A summary of our intangibles and accumulated amortization are as follows:

	December 31, 2014
(In thousands)	Gross Carrying Amount		Accumulated Amortization			Net
Trade name	$	10,950	$	(1,642	)	$	9,308
Customer relationships		9,290		(6,039	)		3,251
Websites		3,331		(2,211	)		1,120
Supplier contracts		1,720		(609	)		1,111
Option for future content		900		(418	)		482
Leases		400		(400	)		—
	$	26,591	$	(11,319	)	$	15,272

	December 31, 2013
(In thousands)	Gross Carrying  Amount		Accumulated Amortization			Net
Trade name	$	10,950	$	(913	)	$	10,037
Customer relationships		9,290		(3,484	)		5,806
Websites		2,962		(1,386	)		1,576
Supplier contracts		1,720		(338	)		1,382
Option for future content		900		(78	)		822
Leases		400		(372	)		28
	$	26,222	$	(6,571	)	$	19,651

Future Amortization of Other Intangible Assets

As of December 31, 2014, the remaining amortization by year for intangible assets is as follows:

(In thousands)
Year Ended December 31,
	Amount
2015	$	3,654
2016		2,185
2017		1,849
2018		1,013
2019		913
Thereafter		5,658
	$	15,272

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STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2014

STOCK-BASED COMPENSATION [Abstract]

STOCK-BASED COMPENSATION

NOTE 13. STOCK-BASED COMPENSATION

Equity Compensation Plan

As of December 31, 2014 and 2013, we had one equity compensation plan.  The 2012 Incentive Compensation Plan of RLJ Entertainment, Inc. (the “Incentive Plan”) was approved by the shareholders of RLJ Acquisition, Image and Acorn Media on September 20, 2012.  The Incentive Plan is administered by the compensation committee of our Board of Directors, and allows the compensation committee to award up to a maximum of 1,244,153 shares under the Incentive Plan.  The compensation committee may award options, stock appreciation rights, restricted stock awards, restricted stock unit awards, bonus stock and awards in lieu of obligations, dividend equivalents, performance awards, and other stock-based awards (as those terms are defined in the Incentive Plan). No person may be granted (i) Options or Stock Appreciation Rights with respect to more than 750,000 shares or (ii) Restricted Stock, Restricted Stock Units, Performance Shares, and/or Other Stock Based Awards with respect to more than 750,000 shares. In addition, no person may be granted awards worth more than $1,000,000 of grant date fair value with respect to any 12-month Performance Period (as that term is defined in the Incentive Plan) under the Incentive Plan, or $2,000,000 with respect to any Performance Period that is more than 12 months.  The maximum term allowed for an option is 10 years and a stock award shall either vest or be forfeited not more than 10 years from the date of grant.

At December 31, 2014 and 2013, there were 787,668 and 883,259 shares, respectively, available for future grants under the Incentive Plan.

Restricted Stock-Based Compensation Grants

Compensation expense relating to the restricted stock awards for the years ended December 31, 2014 and 2013 was $769,000 and $805,000, respectively.  Unrecognized stock-based compensation expense relating to these restricted stock awards of approximately $504,000 at December 31, 2014 is expected to be expensed ratably over the remaining vesting period through June 2016. The weighted average remaining vesting period for non-vested shares is nine months.  Compensation expense related to restricted stock awards is included in general and administrative expenses.

During the year ended December 31, 2014, 190,280 shares of restricted common stock were granted, 182,206 shares were vested and 93,742 shares were forfeited.   Of the 190,280 shares granted, 164,780 shares were granted to executive officers and directors and 25,500 shares were granted to other members of management.  Of the shares forfeited, 65,297 shares of restricted stock were forfeited based upon the failure to achieve the required performance conditions and the remainder of the forfeitures were due to employee resignations.  The shares granted in 2014 were fair valued on the date of grant with a range of $3.49 - $5.00 per share, for a total value of approximately $766,000.  These restricted shares will vest and be expensed over a three-year period for executive management and other management while restricted shares granted to directors vest and are expensed over a one-year period as a component of general and administrative expenses.  The vesting of restricted shares is subject to the achievement of certain service criteria, qualitative performance criteria, or both.  The amount of expense recognized to date has been reduced by estimated forfeitures related to certain performance targets that are not likely to be achieved.  The restricted stock may be subject to further forfeitures if the employee or director terminates his or her service during the vesting period or future performance measures are not achieved.

Restricted stock award activity under the Incentive Plan for the year ended December 31, 2014, and changes during the year then ended are presented below:

(In thousands, except per share data)
	Service Shares				Performance Shares
Restricted Stock-Based Compensation Award Activity	Shares			Weighted-Average Grant Date Fair Value	Shares			Weighted-Average Grant Date Fair Value
Non-vested shares at January 1, 2014	188		$	5.38	135		$	5.15
Granted	130			3.76	60			4.60
Vested	(127	)		5.51	(56	)		4.60
Forfeited	(12	)		5.01	(83	)		5.16
Non-vested shares at December 31, 2014	179		$	4.13	56		$	5.09

During the year ended December 31, 2013, 323,316 shares of restricted common stock were granted.  Of the 323,316 shares granted, 233,707 shares were granted to executive officers and directors and 89,609 shares were granted to other members of management. The shares were fair valued on the date of grant with a range of $3.72 - $5.97 per share, for a total value of approximately $1.7 million. These restricted shares will vest and be expensed over a three-year period for executive management and other management while restricted shares granted to directors vest and are expensed over a one-year period as a component of general and administrative expenses.  The vesting of restricted shares is subject to the achievement of certain service criteria, qualitative performance criteria, or both.

Restricted stock award activity under the Incentive Plan for the year ended December 31, 2013, and changes during the year then ended are presented below:

(In thousands, except per share data)
	Service Shares					Performance Shares
Restricted Stock-Based Compensation Award Activity	Shares			Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Non-vested shares at January 1, 2013		38		$	7.98		—	$	—
Granted		188			5.38		135		5.15
Vested		(38	)		7.98		—		—
Forfeited		—			—		—		—
Non-vested shares at December 31, 2013		188		$	5.38		135	$	5.15

All restricted stock amounts will participate in dividends, if declared, prior to their vesting date.